CEPR Releases Report on Prescription Drug Research

Economist Dean Baker examines alternatives to the drug patent system

For Immediate Release: September 22, 2004

Contact: Patrick McElwee, 202- 387-5084 

In a new report, "Financing Drug Research: What Are the Issues?" Center for Economic and Policy Research (CEPR) Co-Director Dean Baker contributes to a growing public debate on alternatives to the patent system as a mechanism to fund pharmaceutical research. Given the increasing burden on families and the economy of U.S. prescription drug prices, whose growth has been fueled in large part by government-granted monopolies to patent holders, several alternative mechanisms for funding bio-medical research have been proposed. Dr. Baker examines and rates four such proposals, and in the process articulates criteria by which any proposed mechanism should be evaluated.

Without some form of intervention in the market, such as granting and enforcing exclusive patent rights, economists agree that there would not be enough money to support pharmaceutical innovation.

However, Dr. Baker points out that, while the patent system is one method of intervention capable of generating funds for research and development, it also creates large economic distortions and inefficiency. Patent protection pushes drug prices far above the cost of production, often by 400 percent, or more. Other distortions of the patent system include: unnecessary marketing expenses; a tendency to research duplicative, rather than breakthrough, drugs; neglect of fundamental bio-medical research unlikely to produce patentable products in the near future; and a perverse incentive for researchers to keep their research private, even preventing the public from becoming aware of potentially harmful side effects.

The four alternatives Dr. Baker examines include a proposal to require employers to contribute funds to drug researchers, a proposal to compensate patent holders based on the quality and extent of use of their drug, a proposal under which the government would purchase most drug patents and place them in the public domain, and a legislative proposal to establish a group of publicly supported pharmaceutical research centers, which would develop patents for public use.

Dr. Baker evaluates each of these alternatives, as well as the current patent system, based on ability to finance research, effect on the price of drugs, potential for political interference in research priorities, impact on international coordination, and incentives for excessive marketing, copycat research, and keeping research findings secret. Dr. Baker concludes that all proposed alternatives "hold clear advantages over the patent system," in part because each would allow drugs to be sold in a competitive market unhindered by government-granted monopoly rights.