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Home Publications Blogs Beat the Press The High Costs of Protectionism: Prescription Drugs, Again

The High Costs of Protectionism: Prescription Drugs, Again

Tuesday, 13 July 2010 07:22

The NYT ran a front page story about how SmithKline Beecham concealed test results showing that its diabetes drug, Avandia, increased the risk of heart attack. It would have been worth including some economic analysis pointing out that this sort of behavior is a predictable result of government granted patent monopolies.

The huge mark-ups that drug companies get as a result of this monopoly give drug companies an enormous incentive to misrepresent the results of drug trials. Not mentioning patent protection in the context of an article like this would be like reporting on the black market in blue jeans in the Soviet Union without pointing out that there was a shortage of jeans at the prices set in stores run by the government.

Comments (8)Add Comment
written by fuller schmidt, July 13, 2010 7:48
Is the Soviet Union price too high or too low in the example?
me-too instead of not me
written by frankenduf, July 13, 2010 8:17
another corruption of the current patent/lax fda complex is the me-too development model of new drugs- in the olden days, the fda would not approve a new drug unless it was shown to be either significantly more effective or safer than existant drugs- but now drug companies are allowed to patent new (hence expensive) drugs that are simply comparable to previously approved new drugs- this was the quandary for avandia- it was not as effective as the established glyburide, which has a safer and much longer profile of use on the market; and was no better than actos- this was why Smith tried to internally create studies which would cloud this issue- avandia was simply a me-too drug which was approved in lieu of actos, is more dangerous, is not as effective as older generation medicines (insulin, glyburide, metformin), and cost much more- basically all the incentives are turned ethically upside down in a medicine-as-business approach, leading to the ironic expose where a Smith 'Dr.' knowingly suppresses info that might lead to patients' premature death
written by izzatzo, July 13, 2010 9:37
The opposite of a jean shortage in the prior Soviet Union at government prices set too low, is a surplus in the Big Pharma market at prices set too high, where the latter creates an incentive for counterfeit drugs at lower black market prices, or reimported drugs at lower discriminatory prices, instead of black market prices for jeans at higher prices.

The artificial surplus created inherently by drug patents also creates incentives for useless copycat drugs designed to piggyback off the last blockbuster to keep the economic rents rolling in and block the benefits of generic drugs.

Mainstream reporters also have surplus and shortage problems of their own. A black market for jeans that compensates underpriced jeans in the Soviet Union with higher private prices is readily over reported as a shortage because it's a condition that restricts private markets, particularly by the government competing with and unpricing the private sector directly.

The same reporters under report the surplus problem of Big Pharma as a mirror image of a distorted market in the opposite direction, e.g., a market that does not clear due to excessive overpricing and oversupply.

Reporters don't see this as a problem, because they refuse to interpret patent protectionism and high prices as government monopoly interference in competition and private markets. Underpriced jeans and overpriced drugs are just not in the same ideological economic category for them.
written by diesel, July 13, 2010 12:38
We were all home for Christmas (1970's), attending a party at one of my father's co-worker's homes. Co-workers in this case meant pharmaceutical research chemists. My older brother offered to mix me a drink--that should have been a red flag. I begged off, saying that I preferred wine, but he insisted--a bloody Mary, lotsa vitamin C, celery for roughage, what could it hurt? Okay. When he handed it to me I noticed it looked kinda pale, not much tomato juice, but thinking nothing of it, I quaffed away while he and I discussed something or other. Feeling transported, and wanting to share some recently gleaned insight, I remarked to him that the pharmaceutical industry was a government-sanctioned monopoly, which was ironic, considering how our Dad always went on about the virtues of the free market and its salutory effect in disciplining the careless and irresponsible. Well, dinner was served and we were all seated at a long table, much goodwill and clinking of glasses, scraping of knives and forks on china and the murmur of civilized conservation, when out of the blue my brother prompted me "Tell us "myname", what it was you were saying to me earlier about the pharmaceutical industry." And so I did, thinking I was bringing enlightenment to this group of research scientists and executives or at at the very least bringing up an interesting topic of conservation. Well, the "sound of the pin dropping" saying would not be out of place here. It seems my dinner companions did not share my zeal in pursuing this particular irony. But, undaunted, I renewed my attack. By God, I wanted to hear what these intelligent people had to say. Nothing apparently.

I recall being driven home lying across the back seat of someone's car, and later saying to my father that I seemed to have made a mess of things. Yes, he said, bemused but not angry, I had.

I learned two important lessons from this episode. The real meaning of the word "taboo", and never let your brother (especially if he's a lawyer) mix your drinks.
tabooism in America
written by fairleft, July 13, 2010 1:00
Thanks diesel, great story, the importance of work-related taboos in the everyday life bargain of the middle classes can never be displayed too often. Most of the middle class and all of the upper middle class have bought into the taboos of their little worlds, and that alone tells me they won't lead us out of this country's increasingly drastic economic and social/moral ('I got mine, screw you!') decline.
written by fuller schmidt, July 14, 2010 6:59
Thank you izzatzo. Excellent story diesel.
written by generic avandia, October 29, 2010 9:23
Therefore, Avandia should not be used in patients with type 1 diabetes mellitus or for the treatment of diabetic ketoacidosis. • The coadministration of Avandia and insulin is not recommended. • The use of Avandia with nitrates is not recommended generic avandia
written by chloromycetin, October 29, 2010 9:25
chloromycetin Chloramphenicol works by preventing bacteria from producing proteins that are essential to them. Without these proteins the bacteria cannot grow, replicate and increase in numbers.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.