Defense Of Pharmaceutical Patents Still Not Adding Up

from the something-doesn't-seem-right-here dept

The pharmaceutical industry is a very interesting one when it comes to discussions of intellectual property. Even among those who dislike patents in other places, the pharmaceutical industry is held up as an example where it absolutely does make sense. However, there are reasons to question this -- and two recent stories help highlight some of the questions around the belief that patents are necessary in pharmaceuticals. The question, of course, is complicated greatly by the moral questions involving lives on the line -- but even setting that aside, there are reasons to believe patents aren't just unnecessary, but potentially damaging. Nobel Prize winning economist Joseph Stiglitz has been on quite a rampage over the past few years, publishing articles every few months pointing out how patents slow down pharmaceutical innovation. Meanwhile, economists David Levine and Michele Boldrin have a whole chapter in their book on intellectual property that shows that pharmaceutical industries have done fine even in countries that don't allow drugs to be covered by patents. Within our own government, the GAO released a report late last year noting that patents are harming drug development.

More recently, this has flared up with the stories about pharmaceuticals in Thailand. Thailand has decided to ignore the patents on an AIDS drug and a heart-disease drug for the good of its own people -- leading some to bizarrely suggest that "it's a wonder" that drug companies still invest in drug research. As David Levine points out, does anyone actually believe that no one would have invested in AIDS research if they knew that Thailand would ignore the patents? The story is made even more ridiculous by one pharmaceutical firm's announcement that it will no longer sell drugs in Thailand because of the government's decision. This seems doubly stupid. By refusing to market their own drugs there, they simply guarantee that the entire market goes to other providers.

And, as for the biggest question about how pharmaceutical companies can make back money if exact replicas in the form of generic pills are on the market, it appears that's not quite as big a problem as the pharmaceutical industry (and patent system fans) would have you believe. Stephen Dubner over at the Freakonomics blog has a post about differential pricing in the pharmaceutical industry that points to a Wall Street Journal article on the same topic. While the core of both articles is about how the difference in drug prices (mainly for generic drugs) between pharmaceuticals is huge, a secondary point of interest is that the brand name off-patent drugs still command a noticeable premium over the generic copycats. It turns out that brand certainly does matter for drugs (especially in the US, where direct consumer advertising of drugs is allowed). So with all of that, it's hard to see how the claims that generic drugs (being identical to the patented versions) destroy the market for the original drug holds up. Just like any other competitive industry, being first and having an identifiable brand (even with identical copycat products) allows the originator to command noticeable premiums.


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  1.  
    identicon
    Bill, Mar 16th, 2007 @ 3:46pm

    Patents - the American dream

    I could see some patent reforms put in place to stop some of the nonsense that's happening but I don't believe patents will ever disappear from our system. Pantents are just too engrained in our society and people believe too strongly in them for the government to do away with them.

     

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  2.  
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    .., Mar 16th, 2007 @ 4:04pm

    ..

    Give the pharmco 8 years of a solid monopoly in a market from the date a drug gets approval in that market whether or not it be being sold. Ban direct-to-consumer drug marketing internationally and domestically, and open the gates to generic prescripts on eight years plus a day.

    There will be 'miraculous' innovation out of the pharmcos, with 8 years to recoup all investment, manufacturing costs and to finance the next hundred drug attempts; they will have little choice but to increase development - as it should be. As an added benefit, all of the terrible commercials advertising the next miracle drug will no longer bother me so and the advertising costs can be better spent elsewhere.

     

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  3.  
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    Joe Smith, Mar 16th, 2007 @ 4:10pm

    sceptic

    I am highly sceptical (critical) of patents on things like software and business methods but on pharmaceuticals I generally support some form of protection.

    it seems to me, however, that patents may be the wrong form of protection. The biggest investment by drug companies seems to be in proving that a drug is safe and effective, not in discovering the drug in the first place. There have been recent stories in the press talking about a discovered new use in fighting cancer for an old (off patent) drug used for metabolic disorders. The concern expressed is that no company will put up the money for testing to prove that the drug works to fight cancer because the oatent has already expired. This example demonstrates both the need for some protection and the inappropriateness of the classic patent model for providing appropriate protection for drug companies.

     

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  4.  
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    Oliver Wendell Jones, Mar 16th, 2007 @ 4:59pm

    Patent Trade Offs

    If you develop a new way to record data on an optical disc, you get a patent and it becomes a huge hit and within a few years people all over the world are using your new technology. You become wealthy.

    Then, for no apparent reason, people who use your technology start falling over dead, or they start giving birth to children with birth defects, or other random but serious issues appear. Tens or hundreds of thousands of people world wide join in class-action lawsuits and wipe out all of your profits over night.

    Not likely? Of course not, because technology doesn't usually affect people in that way - pharmaceuticals do.

    You can test a new potential drug on 100,000 people for 10 years and never see a single issue - because 100,000 people doesn't account for every possible genetic combination, medical family history, potential life threatening illnesses that won't show up until later in life, etc.

    The only way you can get a pharmaceutical company to drop it's "as-long-as-possible" patent protection is to offer immunity from all possible lawsuits resulting from people using the new drug assuming that clinical trials are run to a certain specified standard (i.e., 10,000 people use the drug for 18+ months with no side effects). Otherwise the pharma companies need to squeeze every last cent out of every drug they develop to offset the potential losses from a huge lawsuit (think Vioxx, Phen/Fen, etc.)

     

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  5.  
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    Chris, Mar 16th, 2007 @ 5:17pm

    I love how hard it is to find single article on techdirt that isn’t opinionated and self gratifying. As much as I may agree that the RIAA and its friends are complete douche bags, the publishers have a right and legal obligation to protect their products. This crap is starting to get really old, especially when it's all more of the same whichever industry Mike tries to harass next.

     

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  6.  
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    Michael Long, Mar 16th, 2007 @ 5:18pm

    Brand

    While brand may matter in some cases, I have to believe that in most it does not. If I go to the doctor and he finds some specific heart ailment, he's probably going to prescribe some beta-blocking concoction that "I" certainly have never heard of before.

    Very few drugs in fact, and dispite what watching an evening of television might lead you to believe, are marketed directly to the public. If you're not convinced of that, go to the library and browse through the PDR sometime. If you recognize, say, 1 in 50 I'll be VERY impressed (and wondering where you did your premed).

     

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  7.  
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    Anonymous Coward, Mar 16th, 2007 @ 5:20pm

    "The only way you can get a pharmaceutical company to drop it's "as-long-as-possible" patent protection is to offer immunity from all possible lawsuits resulting from people using the new drug"

    You never heard of insurance?

    If you've never studied a prescription drug's package insert, you'd be shocked to learn that the studies they do for safety, side effects and efficacy usually are done on only a few hundred people - and for relatively short periods.

    Efficacy is ordinarily compared only to placebo, rather than competitive products. How hard is is to beat placebo?

    "get them to drop"?

    I don't care if they agree or not. Pass a law - assuming enough politicians can pass up pharma money, and can muster the courage.

     

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  8.  
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    Frank, Mar 17th, 2007 @ 3:57am

    Is nationalization of the drug companies the goal?

    Meanwhile, economists David Levine and Michele Boldrin have a whole chapter in their book on intellectual property that shows that pharmaceutical industries have done fine even in countries that don't allow drugs to be covered by patents.

    This of course is meaningless to the question at hand. Anyone who puts forth this argument should either be dismissed out of hand or someone should dig for their real agenda. The argument is meaningless because there is still a large US market driving the innovation. The rest of the world can piggy-back on the US market, but the US market cannot piggy back on the US market.

    Remove the incentive for developing drugs and over time the task will be nationalized because it no longer makes economic sense. I suspect that this is the real goal here.

     

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  9.  
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    Anonymous Coward, Mar 17th, 2007 @ 7:27am

    yeah right Frank.

    it's those darn commies under your bed that are behind everything.

     

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  10.  
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    Peter, Mar 17th, 2007 @ 1:52pm

    The pharmaceutical industry recieves huge amounts of money from the US government both in research funds and grants, plus huge tax breaks and alot of their research is done in public universities at public expense but does the US government get any part of the enormous profit that the pharmaceutical industry shows each year?

     

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  11.  
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    Extreme Centrist, Mar 17th, 2007 @ 2:38pm

    I'm old enough to take lots of (prescription) drugs, and, being self-employed, I wish some of them were a lot cheaper.
    I'm also old enough to remember when none of these drugs existed, and how a lot of people died who would now take some pills and be fine.
    Last, I live in a small city with a big pharm-co. Everyone knows people who work there, and we all known something about the economics of drug companies. Getting a drug to market takes close to 10 years, and 95% fail in the sixth to ninth years. If the drug companies don't hit home runs on a regular basis, they go out of business. Take away patents, and home runs turn into singles. The rhetoric that the pharm-co's won't be harmed by taking away their patents is just as stupid as politicians saying that the California electric companies wouldn't be harmed by deregulati Sorry, a brown out caused me to lose a few letters.
    ** Only new drugs are truly expensive because of patents. No high prices, no new drugs. This is a lose/lose situation. **
    This entire discussion, while it is very important, is about politicians pandering to the AARP. I hope it stays talk, because my city, which I like very much, will be screwed if this goes anywhere.

     

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  12.  
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    RandomThoughts, Mar 17th, 2007 @ 3:35pm

    Mike, stick to software.

    Take the Thailand example you used. Will they keep companies from researching AIDs drugs, of course not. If every country in the world ignored patents, would that change the situation? Of course it would.

    What that example proposes is to force the United States to subsidize drug research for the rest of the world, a thing we do a pretty good job of doing right now.

    The example of generic drugs not hurting branded drugs has to come out of either ignorance or lies. When Prozac was under patent, it was a huge blockbuster drug for Eli Lilly. Want to take a guess what its marketshare was after 6 months of being off patent? In those 6 months, it lost over 90% market share.

    Now, I do believe that if there is a generic drug available, that is what a consumer should buy, no questions asked. Without patents, we will have no future "new" drugs, because generic companies do not do research.

    Tell me, what country that ignores patents are out there researching drugs? Which one? I know of a few that just copy others drugs, but tell me, what drugs have they invented?

     

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  13.  
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    Lawrence D'Oliveiro, Mar 18th, 2007 @ 2:43am

    Chilling Effects

    Indonesia recently refused to continue supplying bird flu samples to the WHO.This was because they didn't want to contribute free research that would be used to create a patented vaccine or drug that would then be sold back to them for a hefty fee.

    I think the whole health/pharmaceuticals industry is just about the worst example in the world of free-market capitalism in action.

     

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  14.  
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    Norm, Mar 18th, 2007 @ 8:43am

    Re: Chilling Effects

    So Indonesia does not supply its bird flu samples and thus no vaccine is produced so bird flu breaks out in Indonesia and millions die, but at least they did not give any money to capitalists.

    That makes sense to you?

     

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  15.  
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    JR, Mar 18th, 2007 @ 11:08am

    CORRECTION: There is no auch thing as an exact duplicate when it comes to generic copies of braanded drugs. By the FDA's own requirement, a 'generic equivalent' must prove 70% bioequivalence to the branded drug. It is a know fact that often times when a patient takes a generic antiobiotic, it is more likely that the drug will not completely erradicate the illness where the branded drug has a higher success rate. I would hate to think that someone I loved died because they took a weaker generic drug to treat their cancer or AIDS!

    As for the loss of profit margin due to other countries egnoring patents, why do you thing drugs cost so much in the USA? One of the big reasons besides the huge income per capita is the need to make up for loss of revenue from the countries that do not recognize patented property.

     

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  16.  
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    HG, Mar 18th, 2007 @ 11:19am

    The pharma industry doesn't receive HUGE amounts of money from the government for research!!! That's what 60 minutes would like you to believe, but the fact is that MOST of the government money that isn't spent by the government goes to universities to do the research. The rest goes to that National Institute of Health. Is is extremely rare that ANY medicine in use today has resulted directly from government funded research. Rather, this research typically tests concepts for new drugs. The pharma companies peruse the results of these concepts and then begin exploring routs to develop a molecule that may be linked to the discovered concept. Many fail and these failures cost billions of dollars annually. Few succeed and make it to the market.

    A typical drug patent is 20 years and the clock begins ticking at the moment the molecule has been discovered. Then it must be developed and tested for safety in 3 or more phases of trials. On average, these testing phases last 12-14 years. Once the drug hits the market, it has 6-8 years to recoup not only its development costs, but also the development costs of all the others that failed along the way.

    Oh, don't forget this: the lawsuits and patent challenges begin usually 1-2 years after the drug hits the market, so now their are huge legal fees on top of it.

    Do you get it? Don't trivialize this topic unless you dig deeper. Don't mess with the development of new cures. I am selfish. I want whatever it is that may kill me later in life erradicated before I can get it!

     

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  17.  
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    Joe Smith, Mar 18th, 2007 @ 11:56am

    Proper design

    "A typical drug patent is 20 years and the clock begins ticking at the moment the molecule has been discovered. Then it must be developed and tested for safety in 3 or more phases of trials. On average, these testing phases last 12-14 years."

    Which is one of the reasons the current patent law may not be the best way to protect pharmaceutical companies research efforts. It should be possible to come up with a revised system which leads to more research and lower prices. The success of any property rights regime will depend on whether the property rights are designed in a way which meet the needs of the market.

     

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  18.  
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    mjr1007, Mar 18th, 2007 @ 12:10pm

    Once again you've missed the point

    The optimist sees the glass as half full, the pessimist sees the glass as half empty, the engineer sees the glass as twice as large as it needs to be. Don't be caught in this wrong head either or nonsense.

    Wrong headed platitudes.
    Patents impede innovation.
    Companies impede innovation to maximize return, they simply use a ridiculous patent system to do it.
    If it wasn't patents it would be something else.

    Companies search for new life saving drugs.
    Companies search for new money making drugs.

    If you want a healthy life you must take drugs.
    If you want a healthy life you must have a healthy lifestyle.

    If you want better drugs give the companies more money.
    If you want better drugs spend money researching how to lower the cost of the clinical trials.

     

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  19.  
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    RandomThoughts, Mar 18th, 2007 @ 12:50pm

    I have two points, but the comment on generics not being the same drug is just plain wrong. An FDA approved generic has exactly the same active ingredients, has exactly the same strength, works exactly the same in the body as the branded drug. There is no difference and when a generic is available, people should use them.

    MJR1007, so drug companies should not spend money on drugs but on how to make their clinical trials cheaper? Trust me, they are investing in making clinical trials more efficient, but clinical trials will only get more expensive as the FDA and the general public requires larger and larger trials to ensure that drugs don't hit the market and ends up killing subsets that might have been missed in a smaller trial.

    Lifestyle I agree with, lead a healthy lifestyle and you will be healthier.

     

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  20.  
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    mjr1007, Mar 19th, 2007 @ 10:37am

    Re:

    MJR1007, so drug companies should not spend money on drugs but on how to make their clinical trials cheaper? Trust me, they are investing in making clinical trials more efficient, but clinical trials will only get more expensive as the FDA and the general public requires larger and larger trials to ensure that drugs don't hit the market and ends up killing subsets that might have been missed in a smaller trial.

    Don't recall specifying drug companies. Why not focus all of NIH to delivering more cost effective treatments. Trials should be automated, so rather then risk humans why not risk bits and bytes.

     

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  21.  
    identicon
    Bob Shy, Mar 26th, 2007 @ 1:47pm

    FDA Drug Registration

    It is my understanding that drug companies have to pay $400,000 to get FDA approval to merchantdise a particular drug. This information was passed on to me from a person in the drug busuness. I would like to know if this is true.

     

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