Global Drug Diffusion and Innovation with a Patent Pool: The Case of HIV Drug Cocktails

Designed to reward innovation, patent protection often leads to high drug prices that make life-saving medicines unaffordable to patients. This tension further induces increasing patent infringement and invalidation to reduce prices, particularly in developing countries. The situation is severe for treatments that require multiple drugs owned by different firms with numerous patents, notably for HIV. I study the impact of the first joint licensing platform for drug bundling (the Medicines Patent Pool) on global drug diffusion and innovation. The pool allows generic firms worldwide to sublicense drug bundles cheaply and conveniently for sales in a set of developing countries. I construct a novel dataset from licensing contracts, public procurement, clinical trials, and drug approvals. Using difference-in-differences methods, I find robust evidence that the pool leads to a substantial increase in generic supply of the total drugs purchased. In addition, the branded-drug makers and other entities, such as public institutions, respond to the pool with higher R&D inputs as measured by clinical trials. The R&D input increase is accompanied by increases in generic drug product approvals. Finally, I estimate a simple structural model to quantify welfare gains and simulate counterfactuals. The total benefit to patients and firms far exceeds the associated costs.