The Cost of Protectionism in Pharmaceuticals
Knight-Ridder/Information Tribune Services, October 24, 2002
Next month the pharmaceutical company Wyeth is planning an educational campaign on college campuses about depression. Wyeth sells the patented anti-depressant Effexor. The company has hired Cara Kahn --star of an MTV reality show—to help draw crowds of students to their forums and events, including free screenings for depression.
Anti-depressants are an enormously profitable, multi-billion dollar market for the pharmaceutical industry, and college campuses are a significant and growing part of that market. While no one doubts that depression is a serious and widespread mental health problem, and that anti-depressants have helped many of its victims, the thought of big drug companies trolling the campuses for new customers who might need to be persuaded that there is a pharmacological solution to their problems is disturbing.
Unfortunately this episode is just a drop in the bucket, when it comes to the harm and waste caused by a patent system that has spun out of control. Pharmaceutical companies now employ more than twice as many people in sales and marketing as in research and development.
This is just what standard economic theory would predict: a company that is granted a monopoly, enforceable through patent law, will seek to expand its monopoly profits by increasing demand. For drug companies, that means convincing doctors to prescribe and patients to take their drugs.
The industry counter-argument is that their monopoly profits are the only way to finance the research and development that bring us new, life-saving and life-improving drugs. But is this true?
In addition to the waste and harm associated with marketing and advertising, there is the problem that the majority of the pharmaceutical companies' research spending actually goes to copycat drugs. These are drugs that attempt to serve the same function as already existing pharmaceuticals, so as to get a new patent for the same thing.
Add in the enormous legal costs of acquiring and protecting patents, political lobbying and other waste, and patent protection is increasingly proving to be a very expensive and inefficient means of financing useful research. About half of all bio-medical research is currently financed by the public sector, through government, universities, or non-profit foundations. For many drugs, a private company will draw directly on this publicly-supported research, carrying through the necessary clinical trials and grabbing the patent.
The question naturally arises: why not increase public sector funding, and make these drugs available as generics, at a fraction of their patent-protected price? Economist Dean Baker has done some of the calculations. Our federal and state governments would save so much money—from lower prescription drug prices for Medicare and Medicaid—that these savings would practically pay for public funding of the pharmaceutical research now funded by the drug companies. And this does not include the savings to other consumers, or the benefits to the rest of the economy, both of which would be quite large.
From a purely economic point of view, the case for combining public funding of pharmaceutical research with generic drugs is quite compelling. This is something that members of Congress, as well as advocates for senior citizens, might want to consider as they look at legislation to provide a prescription drug benefit for Medicare. We have millions of senior citizens who must sacrifice and struggle to get necessary medicines, and double-digit annual increases in drug prices are making it increasingly expensive to solve this problem.
Of course the pharmaceutical lobby is one of the most powerful in the world—another curse of the patent system that gives them these huge profits. According to the Center for Responsive Politics, the industry spent $187 million on lobbying in the last (1999-2000) election cycle. These companies can be expected to oppose any infringement on their terrain. In fact they have lobbied hard against even including a prescription drug benefit in the Medicare system, for fear that it might lead to a reduction in US drug prices (aMong the highest in the developed world).But these corporations cannot dominate drug and health care policy indefinitely, any more than the tobacco companies could hold on to the 1950's rules—in public health, advertising, or the courts—regarding smoking. Sooner or later the sheer magnitude of the waste and excess caused by the present patent system will lead to reform, and they will not be able to prevent it.