More People Recognizing Patents Might Not Help In Healthcare

from the keep-on-thinking dept

Whenever a debate over the patent system comes up, inevitably, someone brings up the pharmaceutical industry as an example of where the patent system both works and is necessary. Without it, the refrain goes, no one would be willing to spend the billions of dollars on drug development needed to bring out vital drugs. So, it goes in theory, however. Reality doesn't always match that. David Levine's book Against Intellectual Monopoly has a great chapter (warning: pdf file) on why the argument for patents in the pharmaceutical industry isn't nearly as strong as people make it out to be. It completely destroys the idea that without pharma patents there can be no pharmaceutical industry, by pointing to other countries that had no patent protection over pharmaceuticals until recently -- but still had absolutely thriving pharma industries. In other words, patents aren't needed for a pharmaceutical industry.

However, if the patent system does recognize pharmaceuticals, are those patents really beneficial? Again, Levine's book hacks away at that notion, pointing out that, as with any government-granted monopoly, rather than creating real incentives for innovation, the patent system has created a situation where rent seeking occurs. The pharmaceutical companies recognize the huge bonus that is given to them in long-term monopoly protection, and seek to play certain games to protect it. That often means less actual innovation, and plenty of attempts to basically recreate what's already been done and get monopoly protection on it. That leads to plenty of "me too" drugs that are just slightly different than what's on the market, and plenty of minor modifications (Claritin to Clarinex) that are then patentable. If you're a pharma company, this makes plenty of sense. The actual investment in discovery is low. The chances that it will make it through FDA-required testing is much higher, and the monopoly rents are there for the taking. Combined with the fact that pharmas are allowed to advertise directly to customers to create a notion of perceived (rather than real) benefit to the new versions of the drugs, and the end result is billions in money that could have gone towards research new and important ways to make us healthier (not necessarily involving drugs), that instead goes into seeking another artificial and unnecessary monopoly from which profits can be squeezed.

With all that as background, it was interesting to see a post on Slashdot this morning claiming that a new report from the GAO claims that patents are preventing the development of new drugs. The actual report (warning: pdf) isn't quite as strong in its wording. Rather, it notes that there is a worrying trend in fewer new and innovative drugs being created, and also sees evidence that pharmaceutical companies are playing games to expand monopoly protections. It does note that many are concerned that patents are the cause of this, though it's clear that there are many factors playing into it. The report isn't conclusive about patents -- but it is very good to see that the storyline that patents are necessary for the creation of new drugs is finally being met with some skepticism in high places.


Reader Comments (rss)

(Flattened / Threaded)

  1.  
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    Thomason, Dec 21st, 2006 @ 1:30pm

    OK, but...

    The best monopoly U.S. drugmakers ever had was not granted by the patent office, but by the FDA. When the laws were changed, primarily to allow generics, the exclusivity granted by the FDA diminished. Did the old FDA hamper innovation and new drug development?

     

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  2.  
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    Christian, Dec 21st, 2006 @ 1:40pm

    Wait...

    How would the money not spent on these slightly-different drugs have gone to research for new drugs? That money needs to get to the pharma company first for them to spend it on research, right?

     

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  3.  
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    Rick, Dec 21st, 2006 @ 2:30pm

    They are using their monopoly profits to create even more monopoly profits, not new drugs.

    If they would just define 'obviousness' to include minor changes to current drugs. Instead they are letting them create another patent for something that's almost the same and furthering their monopolistic profit potential on the same drug. Defining minor changes as obvious would then lead them to market 'Improved' versions rather than 'new' drugs, when they realy aren't new at all. It also would negate their argument they need to charge so much for minor improvements as if they are completely new and heavily researched drugs.

    This would, in the end, force them to innovate and come up with NEW drugs rather than just minimally improved versions of the same old thing. Otherwise they would not be in business. The current system just fuels them to drive up the costs of our health care while not curing anything new at all.

     

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  4.  
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    David Johnston, Dec 21st, 2006 @ 2:47pm

    Patents Might Not Help In Healthcare

    Practically all new drugs are produced in the U.S. because the U.S, still allows "exhorbitant" profits. You can have a thriving Pharma industry without patents, but you wont have many new drugs.

     

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  5.  
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    Anonymous Coward, Dec 21st, 2006 @ 3:15pm

    Re: Patents Might Not Help In Healthcare

    You can have a thriving Pharma industry without patents, but you wont have many new drugs.
    On the contrary, you will have both.

     

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  6.  
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    Chris, Dec 21st, 2006 @ 3:16pm

    If there really *was* a thriving pharmaceutical industry comparable to that of the US anywhere else, I might give him some credit. Too bad there isn't. If you really want to look at what the loss of profits does to the industry, look at Europe thirty years ago; since the institution of heavily socialized healthcare, most of their pharmaceuticals have literally dive-bombed.

    In response to Ricks comment, "This would, in the end, force them to innovate and come up with NEW drugs rather than just minimally improved versions of the same old thing."

    When drug companies come up with "minimally improved versions of the same old thing" those typically fall under a patent extension of the same drug which grants them at most another 5 years of monopoly share. When a company only gets monopoly rights for 10 years to being with, and the average length is 13 years, this is nothing in terms of loss of consumer benefit. If you really want to debate it, anyone could argue that since they are the creators of the drug, they are also the most qualified to improve it and thus a minimal extension in the patent produces the greatest consumer surplus by ensuring the drug is improved.

    You also seem to think that if pharmaceutical companies just bothered to make new drugs and tried a bit harder, it would happen. Considering the majority of drugs take 15 years to develop and a large number cost over 500 million, many 1 billion, to get to market and maintain through their life cycle, all but the largest companies would be able to support this in both terms of finance and physical capacity to research and create. You’re completely neglecting the majority of the industry that only has the resources to operate a handful of drugs at a time and does not have the financial capability to just stop making profits and make more drugs.

     

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  7.  
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    AMP, Dec 21st, 2006 @ 3:38pm

    Re:

    Hmm, I would tend to agree with Chris here. I know little about the pharma industry and I don't know much more about the patent systems. But I don't think that this is as easy as just taking away their patents, ending the "evil monoploies" and waiting around for all this great innovation....but that is just a hunch on my part.

     

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  8.  
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    Stu, Dec 21st, 2006 @ 4:54pm

    how it works

    Pharma makes their biggest profits by grabbing market share, not by innovation or invention.

    Two of the easiest ways to grab share are by
    (1) marketing "me to" products and
    (2) acquiring other drug companies.

    When you see them paying these immense amounts for other companies, ask yourself why they aren't using the money to develop drugs that are really new.

    It's interesting how much more the same American-made drug costs in the USA than in other countries, like Canada. That's because our government is bought and paid for by Big Pharma (and other industries). Proof? Just look at the new Medicare prescription "benefit" plan, where the US government FORBIDS price negotiations.

    Our laws (not just the one I mentioned) give them all that money for acquisitons and "me to" products.

    Since some countries care more about their citizens than for industry, the corporations move here. Glaxo moved here from England, where they were very successful and creative (Imitrex for migraine and many others). Then they bought Smith, Kline - quick learners.

    When a truly unique drug came along, like the original antidepressant, the drug companies saw the market and came up with a truckload of "me to" drugs that have no clinical advantage for the patient. (yes there are different types now: SSRI's, Tricyclics, MAO inhibitors, etc.)

    But how many of each type are needed? Advertising directly to the patients creates the false demand. Imagine that - lay people telling their doctors what prescription drugs they want.
    WTF! Amazing!

    Another example of "me too" drugs: Prilosec and Nexium - chemically almost identical, just like the benefit to the patient. Same company, "me to" product invented because of an expiring patent. Prilosec is now available over the counter at a much lower price.

    If you use Nexium, just switch to OTC Prilosec at the same dosage.

     

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  9.  
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    Anonymous Coward, Dec 21st, 2006 @ 4:57pm

    Re:

    Considering the majority of drugs take 15 years to develop and a large number cost over 500 million, many 1 billion, to get to market and maintain through their life cycle,...
    Ahhh, the cost of marketing. For all of the talk of the cost of inventing drugs, let's not forget that pharmaceutical companies spend more "marketing" drugs than "inventing" them. Personally, I would rather have lower priced drugs than more advertising shoved in my face.

     

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  10.  
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    Stu, Dec 21st, 2006 @ 5:16pm

    Waiting in an MDs office, I read an AMA Journal article which said that drug companies spend approx. 50% of sales on advertising and promotion - salespeople, giving away pens, "seminars" in exotic locations, and such.

    I don't know many manufacturing industries that spend that percentage.

    Maybe if they had unique products instead of knock-off copies, they wouldn't have to sell so hard.

    But that would mean they'd have to invent something.

     

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  11.  
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    Chris, Dec 21st, 2006 @ 6:16pm

    First, in response to our friend "Anonymous Coward," the average cost is 400 million to market which has very little, if any advertising factored in. If you really want to include advertising, then you’re looking at significantly greater numbers.

    Now for Stu: I want to know why you so passionately believe there are so few “new” drugs on the market. Are you really so caught up in their advertising campaigns that even you miss all the amazing new technology out there that isn’t animated to your face?

    Now I’m not going to go on forever about how drugs should be cheaper, because many could be a decent percentage less expensive. Now let’s not forget, though, how not only are the drugs bargained down to a point in socialized healthcare where the companies settle for market share over profit (which really isn’t much better from a consumer standpoint), but that those prices aren’t from significantly cheaper drugs, but because they’re subsidized. So if you’d really like cheap drugs, maybe you should think about forming your own political party…or maybe just moving to Canada.

    The typical rule of thumb in purchasing pharma companies is: will my accounting costs be covered so that in 5 years, the acquisitions will be gaining me a profit.

    Let’s now examine the ramifications of two scenerios

    Case 1: Company acquired is small and has a drug that can make me money, but because they can’t develop the drug for whatever financial, capacity, etc constraints it becomes profitable for me to purchase them and develop the drug. In this case, big company makes money, and new drugs gets to market and helps people, and the stock holders/owners of the original company realize a return on their investment and have more money to reinvest wherever they chose and thus further expand the world economy making it that much better of a place to live.

    Case 2: Company acquired isn’t necessarily small, but has a marketed drug, they are profitable and everyone seems happy. Once again, the five year rule applies, so that in five years the buyer would once again have the money + future profit to buy more companies or create new drugs. So what happens here, big company sees that by integrating the drug into their pipeline, production and maintenance costs are minimized which increases efficiency, which any self respecting economists would say is a good thing. One could say that lowers the consumers cost too, however it rarely does due to a concept called “profits are good.” Furthermore, the same statement about the owners/stock holders is true, they get their money and can invest it somewhere else. So in sum, a drug changed hands, a company will have great profits in 5 years, and the original investors realized a return.

    In either case, if you analyze the transactions you see that a drug gets to market and money seems to almost magically get back to everyone. It’s called economics, and with a reserve banking system, it’s really rather incredible how the world ends up with more than it had before.

    So what’s happening here, big companies make money buying small companies and selling their drugs, which, gasp, creates a supply and demand issue. Yes, the idea of getting fabulously wealthy by having your drug bought does encourage entrepreneurs and scientists to study and search for new drug candidates…which will be bought…and they get their money…and gasp, once again, everyone is happy

    Now nothing is quite this simple, but please, please do get over yourself and stop saying there’s no innovation.

     

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  12.  
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    Anonymous Coward, Dec 21st, 2006 @ 8:13pm

    Re:

    If you really want to include advertising, then you’re looking at significantly greater numbers.
    Precisely. They spend more on advertising than anything else.

     

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  13.  
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    Anonymous Coward, Dec 21st, 2006 @ 8:28pm

    Re:

    Yes, the idea of getting fabulously wealthy by having your drug bought does encourage entrepreneurs and scientists to study and search for new drug candidates…
    What a load. The scientists generally _don't_ get "fabulously wealthy" from their work. That's reserved for the CEO, etc. In other words, the people who _don't_ create new drugs.

     

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  14.  
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    Stu, Dec 21st, 2006 @ 8:40pm

    Chris - "Now for Stu: I want to know why you so passionately believe there are so few new drugs on the market."

    Your assumption that I "so passionately believe" something was interesting. Actually, my comments come from a lot more than blind belief or passion. I believe numbers and actions.

    Check out this blog that quotes a new Government Accounting Office report. It has links to the report also.

    http://www.huffingtonpost.com/merrill-goozner/new-gao-report-debunks-dr_b_36748.html

    I never said there were "so few" new drugs on the market.

    Neither did I say that all acquisitions are bad. I'm a businessman, and I know better.

    The thrust of my comments, and I apologize if I wasn't clear, is that US politicians intentionally keep drug prices high. Outlawing negotiations for Medicare drugs being just one blatant example. And it happens because our politicians are either on the take, or make corporations their primary priority for some other reason. Just look at what they do when they leave elected office.

    Chris - "Now I'm not going to go on forever . . . . . . . maybe you should think about forming your own political party or maybe just moving to Canada."

    Is that one of those, "America. Love it or leave it." remarks? I hope not.

    I enjoyed your lesson on Mergers and Acquisitions; but you missed my point - namely that these extremely profitable corporations - and there's nothing wrong with that - cry to our government that they need these high prices to so they can afford to develop new drugs.

    Although they do produce new drugs, they also do a lot more of what I said in my first post - spend money on grabbing market share with "me to" drugs.

    It also means that Americans are subsiding cheap drugs for other countries. Pharma has the nerve to say that out loud. Our government should protect American citizens.

    I don't argue with the economics of buying and selling companies, you've got that right.

    However, on one hand, they promote themselves as being about helping the sick, and all that. But all the M&A activity, "me to" drugs etc has nothing to do with "helping the sick". How does Glaxo's purchase of Smith, Kline help the sick? It doesn't - AND THAT'S OK - but I've had enough of their hypocrisy.

    You stated very clearly what they are about - AND I'M OK WITH THEM BEING WHAT THEY ARE.

    Chris - You said, I should "please do get over yourself".

    That's just rude, Chris.

    By the way, here's an amusing news flash from AP.
    ------------------------------------------
    Pfizer's McKinnell to get $180M package

    By ELLEN SIMON, AP Business Writer
    Dec. 21, 2006

    NEW YORK - Pfizer Inc.'s former chief executive, Henry A. McKinnell, who was forced into an early retirement in part because of investor anger about his rich retirement benefits, will get every penny of it and more, a new regulatory filing shows.

    McKinnell's package, which the company disclosed in a filing with the Securities and Exchange Commission Thursday, totals more than $180 million. It includes an estimated $82.3 million in pension benefits, $77.9 million in deferred compensation, and cash and stock totaling more than $20.7 million.
    ---------------------------------------
    Hey, I'm sure he's worth every penny.

     

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  15.  
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    psiloscribe, Dec 21st, 2006 @ 10:17pm

    About 10% of new approved drugs are actually something new and not just something supposedly improved upon. Of that 10%, almost all of them are researched and developed with NIH (your tax) dollars. Big Pharma then markets them and sells them for as much or more (since they are break-though drugs) than they would have had they developed them. Funny that someone mentioned glaxo and imitrex. The imitrex patent was running out. (there are about a dozen knock-offs already on the market anyway) Research showed that imitrex is more effective if taken with an aleve tablet. Rather than just TELLING PEOPLE, they developed an imitrex-with-aleve product, patented it and will sell it now as an "improved" new drug, to replace their patentless imitrex. http://money.cnn.com/2005/10/12/news/international/glaxo/

     

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  16.  
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    World Citizen, Jan 2nd, 2007 @ 6:22pm

    Healthcare? Who cares?

    The healthcare industry has evolved over the past century and the pharma branch is one example of this cannibalistic industry - the mantra of the industry is as such:

    There is no profit in a healthy citizenry.

    A healthy citizenry will create a healthy economy and the NEED for such high priced CURES will be reduced if PREVENTATIVE healthcare was ever mandated to be an essential human service to be provided to ALL at base cost.

    The pharma companies rely on us making ourselves sick by continuing to pollute our environments and our bodies. They NEED us to need them, they need us sickly, overweight, diabetic, hypertensive, cancer filled and toxic in order to justify their existence.

    Insurance companies are their 'not to be trusted' allies in this war against our health. The insurance companies are ever at the ready with their handy-dandy COVERAGE DENIED stamps to make sure that the latest and greatest cures are kept just out of reach.

    This in turn helps to create an artificial demand for the 'new miracle drug' which begets the high-priced limited supply that a guaranteed number of people will not be able to afford. Those unlucky shills will eventually die of their disease unburdening society from giving a crap because they have VIAGRA!!

    Tell me - in a day when a significant number of the population is in danger of dropping dead from easily preventable and curable diseases was the best use of time and money really spent on developing Viagra?

     

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  17.  
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    KimR, Mar 17th, 2007 @ 6:38pm

    Re: drug pricing

    The objection to the cost of drugs in the U.S., with the comment "Americans are subsiding cheap drugs for other countries", fails to take a lot into account. One, America has lower taxes and therefore far less is invested in public health - that's the choice of the American electorate which has made it clear higher taxes are a No.
    Second, if drugs cost the same everywhere, undoubtedly that would make them much cheaper in the U.S., but so ludicrously unaffordable to poor nations as to add an even greater burden to the already appalling crisis of access to medicines. In fact, some years ago U.S. companies withdrew a vaccines program in the developing world after just such an outcry in Congress, that "Americans are subsidizing drugs for other nations."
    Surely as global citizens we have some duty to the millions who can't even access basic drugs.
    On the issue of overpaid executives, I couldn't agree with you more.

     

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