That would have been a reasonable headline for a NYT article on India's resistance to U.S.-type patent rights on expensive drugs. The focus of the piece is Herceptin, a cancer drug that costs $18,000 for a single round of treatment, which makes it unaffordable to almost anyone suffering from cancer in India. A generic version of this drug would likely cost two or three percent of this price.

As a result of the enormous price difference between patent protected drugs and free market drugs the Indian government is taking a very critical view of many patents. In this case, the manufacturer, Roche Holdings, has decided not to challenge the production of generics in Indian court since it believes it would lose the case.

The piece presents this issue as a problem because the widespread availability of low cost generics in India and elsewhere will reduce the returns to innovation and will mean that drug companies will have less incentive to invest in developing new drugs. While this is true if we rely exclusively on government granted monopolies to finance research, this is far from the only mechanism that could be or is used to finance research.

There are other more modern mechanisms for financing research than this relic from the feudal guild system. For example, Nobel laureate Joe Stiglitz has advocated a prize system whereby innovators are compensated for breakthroughs from a public prize fund and then the patent is placed in the public domain so that the drug can be freely produced as a generic. It is also possible to simply fund the research up front, as is already done to a substantial extent with the $30 billion a year provided to the National Institutes of Health.

If we eliminated monopolies it would both reduce the cost of drugs and also likely lead to better medicine. The enormous mark-ups provided by these government monopolies gives drug companies an incentive to mislead the public about the safety and effectiveness of their drugs. It is a standard practice to conceal or even misrepresent research findings (e.g. Vioxx). This leads to bad health outcomes, the cost of which likely exceeds the money invested in research and development by the drug companies by an order of magnitude.

For these reasons, a piece like this in the NYT should be highlighting the increasing difficulty that the United States and Europe are facing in imposing patent monopolies on prescription drugs in the developing world. It is wrong to imply that there is some inherent tension between affordable drugs and innovation. This tension only arises with the archaic patent system.

 

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