Patent pools can promote the diffusion of life-saving drugs in developing countries

In 2008, the US Food and Drug Administration approved etravirine, an HIV antiretroviral drug. By 2015, however, it was only accessible in around 25% of lower- and upper-middle-income countries in Central and Eastern Europe. This pattern is not unusual; other critical HIV antiretrovirals also face limited availability in these regions (Gokengin et al. 2018). Moreover, such delays are not exclusive to HIV treatments. Cockburn et al. (2016) highlight that global drug diffusion tends to be slow, particularly in countries with lower incomes, weaker patent protections, and strict price controls.

Ensuring rapid and affordable access to essential drugs is a key policy goal in global health. One proposed approach is the use of patent pools: voluntary agreements in which patent holders authorise an organisation to license specific patents—often as a bundle—to third parties. Historically, patent pools have been used with technology standards, such as in the information technology sector, where they facilitate the licensing of complementary innovations. These pools aim to promote the commercialisation of standard-compliant products and support follow-on innovation by reducing licensing transaction costs and improving coordination in the use of complementary technologies.

More recently, a different kind of patent pool has been suggested in the biomedical field—one that prioritises expanding the geographic reach of specific innovations rather than bundling technologically related ones. Such pools have been proposed for various applications, including vaccines for the SARS epidemic, COVID-19, neglected tropical diseases, and diagnostic testing (Van Zimmeren et al. 2011). But do such geographic patent pools really work, increasing licensing and diffusion of life-saving drugs, or are they just a public relations stunt for patent holding pharmaceutical companies to virtue signal, as some critics have claimed?

Studying the impact of including a drug in the UN’s patent pool

There is limited evidence on this question due to the shortage of public data on licensing contracts. In Galasso and Schankerman (2024), we exploit rich data on licensing from the Medicines Patent Pool (MPP) that allows us to conduct such empirical analysis. Established by the UN in 2010, the MPP is a voluntary licensing institution with a mandate to promote access to affordable and quality assured treatments for HIV, tuberculosis, and hepatitis C in low- and middle-income countries. The MPP negotiates with patent-holding pharmaceutical companies to include patents in the pool and subsequently grants licenses to interested generic drug manufacturers. MPP licenses are nonexclusive, feature low or zero royalty rates, and cover a broad geographical scope.

Our analysis examines how the MPP affects the licensing, launch, and sale of drugs in low- and middle-income countries. The data covers 173 pharmaceutical products and 129 countries over 2005–2018, which covers both before and after the establishment of the MPP. We obtain licensing information for each product-country from a database provided by the MPP. Crucially, the licensing information includes both MPP licenses and non-MPP bilateral licenses between the patentee and generic firms and covers both the medicines in the pool and other products in our sample. 

The unit of observation in our analysis is a product-country-year. In 18% of the observations in our sample there is at least one license, either through the MPP or a bilateral license (not using the MPP). Of these, the average number of licenses is 4.6, of which 1.4 are MPP sub-licenses and 3.2 are bilateral deals. It is much more likely to observe at least one licensing deal for product-countries in the MPP relative to those that are not in the MPP. 

Table 1: Inclusion in the MPP and licensing

Note: The unit of observation is a product-country-year.

Drugs that are included in the patent pool are much more likely to be licensed

Table 1 shows the probability of observing at least one license, and the average number of licensing deals, for different country-product combinations in our sample. The first row focuses on product-country combinations that are not included in the MPP during our entire sample period. The second row presents the same information for country-products that enter the pool, for the sample years before their inclusion in the MPP. The last row provides similar statistics for country-products in the pool during the sample period in which they are included in the MPP. The results are striking. The probability of striking at least one license deal related to the product-country increases is nearly 10 times larger once the product-country is included in the MPP, and the average number of deals is also larger by roughly the same amount. 

Beyond these revealing descriptive statistics, we use modern econometric techniques to study how patent licensing changes when product-country combinations are included in the MPP relative to those not included. The main challenge to empirically identify the effect of the MPP on licensing is that the selection of products that enter the pool through negotiations between the patent holder and the MPP is unlikely to be random. For example, the MPP may be interested in the most effective drugs, which, in turn, would also be more attractive to generic licensees. 

To address this ‘selection’ problem, we exploit the list of medicines that the MPP aimed to license when the pool was formed in 2010. This so-called ‘priority list’ includes around 80 products. Fewer than half of these medicines eventually made it into the pool. Focusing on drugs in this priority list, we compare those that made it into the pool with those for which bargaining with the pool started but failed. Using those drugs, for which bargaining with the pool started but failed, as the control group, we show that the estimated impact of the MPP is quantitatively similar to our baseline specification which does not account for selection.

Drugs in the patent pool become more widely available

Our analysis documents three important empirical findings. First, when a patent is covered by an MPP license, the associated drug-country is more than five times as likely to have a licensing deal with a generic manufacturer. Second, the effect depends on the income level and HIV incidence in the country: the MPP is most effective in extending diffusion of drugs in smaller- and medium-sized, lower-middle income countries with moderate HIV incidence, where bilateral licenses are less profitable and thus less likely to be struck.

Finally, being included in the MPP also affects product market outcomes, not just licensing. The MPP is associated with higher entry rates (launches) by MPP generic licensees, which translates to higher quantities of products and lower prices. However, the estimated impact of the MPP on market outcomes is much smaller than its effect on licensing as many countries covered by the geographically bundled license prove to be of no interest to the generic licensees. In our sample, the probability of observing a licensing deal for product-countries in the MPP is more than five times larger than those not in the MPP, but the probability of observing an actual launch by a licensee increases by a more modest, but still substantial, 40%. 

Using the parameters estimated in the study, we can perform a simple back of the envelope estimation of the welfare gains generated by the MPP over 2010-2017. Due to data limitations, our computations are almost certainly a substantial underestimate of the social benefits of the pool but, even so, they suggest that the welfare gains from the MPP exceed the cost of the institution. 

Implications for research on patent pools in developing countries

More research is needed to confirm these findings, using a richer data set (especially on product launches) covering a longer time period, and studying how such geographic pools can best be designed to maximise their efficacy. Our evidence demonstrates the potential of geographic patent pools to promote the distribution of life-saving drugs in developing countries, and possibly facilitate the diffusion of other innovations, including biomedical and green technologies.

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References

Cockburn, I, J Lanjouw, and M Schankerman (2016), “Patents and the global diffusion of new drugs,” American Economic Review, 106: 136–164.

Galasso, A, and M Schankerman (2024), “Licensing life-saving drugs for developing countries: Evidence from the Medicines Patent Pool,” Review of Economics and Statistics, 106: 1529–1541.

Gokengin, D, C Oprea, J Begovac, A Horban, A N Zeka, D Sedlacek Bayjanov, and A Allabergan et al. (2018), “HIV care in Central and Eastern Europe: How close are we to the target?” International Journal of Infectious Diseases, 70: 121–130.

Van Zimmeren, E, S Vanneste, G Matthijs, W Vanhaverbeke, and G Van Overwalle (2011), “Patent pools and clearinghouses in the life sciences,” Trends in Biotechnology, 29: 569–576.