Drug patents: Rx for profits

An analysis by researchers at the Center for Economic and Policy Research demonstrates that the U.S. government could directly manage pharmaceutical research far more efficiently than the private sector currently does. Under the current set-up, the private sector conducts the research and the government issues Food and Drug Administration approval and a patent on the drug before it goes to the marketplace.

The stakes are high. In the year 2000, the average cost of development of a single drug was $802 million. Such costs are rising much more rapidly than the rate of inflation.

Despite the fact that about half of all biomedical research in the United States is funded by either the government or the non-profit sector, the government grants for-profit drug companies an exclusive 20-year patent, or monopoly, on the drugs they develop. This protection against competition vastly increases drug company profits.

The current scheme is wasteful and inefficient. For example:

• About 70 percent of all drug research spending is for “copycat drugs,” drugs that are similar to, but not identical with, the “hottest” and most profitable new drugs. Competitors try to cash in on the market with their own equivalent. The resulting duplication is extremely inefficient and costly.

• Swollen profits earned by pharmaceutical companies with patent-protected drugs give them the wherewithal to persuade doctors and patients to use their overpriced drugs. Sometimes the sales pitch crosses the line of truth, and sometimes it becomes outright bribery. Moreover, the pharmaceutical industry wastefully employs nearly twice as many people in sales and marketing as it does in research and development.

• Drug companies with patent-protected drugs have a compelling incentive to keep research findings secret until all profitable patents have been granted. Such secrecy is a tremendous hindrance to scientific progress. Worse yet, it has repeatedly facilitated corporate cover-ups of ineffective or dangerous drugs.

• Legal fees associated with the registration and protection of patents squander vast amounts of money.

• Huge amounts of money are spent by the pharmaceutical companies on campaign contributions and lobbying, including the financing of expensive fake “grassroots” movements in a cynical attempt to get people with medical problems to lobby on their behalf. This expensive and anti-democratic behavior would largely disappear if there were not patents to protect.

• The huge profit margins generated by monopoly protection spawn the widespread and illegal production of unauthorized – and sometimes ineffective or dangerous – versions of the drugs.

The authors propose a sensible idea: Instead of granting monopoly protection to drug companies that develop drugs for the market, why not simply contract-out the development of drugs on a competitive basis? Once developed, new drugs would be instantly sold as generics.

No patent protections would be granted or needed, and most of the associated wasteful expenditures would be avoided. For the year 2000, for example, the savings to government and consumers under this approach would have been $40 billion to $85 billion, even allowing for greater government expenditures on research and management.

The authors of the study, Dean Baker and Noriko Chatani, note that “most, if not all, of the additional funding for research could be taken directly from the government’s savings due to lower prescription drug costs for Medicaid, Medicare, and other government supported purchases.” In other words, no new taxes would be required for the government-sponsored drug research.

By the year 2024, the authors estimate the new policy would result in annual savings of around $600 billion, or up to 3 percent of the gross domestic product. Lower drug prices would cause a substantial increase in the average real wage, thereby creating about 4 million new jobs.

The government needs to get out of the money-squandering, patent-granting business altogether. We should develop drugs directly in the public sector or by competitive bid, and squeeze out the wasteful profits, criminal behavior, and anti-democratic activities of the drug barons.

The author can be reached at pww@ pww.org