Nobel Prize Winning Economist Trashes Pharmaceutical Patents

from the continuing-the-trend dept

Tue, Dec 26th 2006 10:49am — Mike Masnick

Continuing last week's discussion about why patents may be bad for the pharmaceutical industry (the one industry that even those who hate other types of patents often agree patents are needed), Slashdot points us to an editorial by Nobel Prize winning economist Joseph Stiglitz where he writes eloquently on the problems associated with pharmaceutical patents. It covers much of the same ground that we've discussed here in the past, but is absolutely worth reading. He covers Thomas Jefferson's view of intellectual monopolies, and how they only make things inefficient. He discusses the tradeoffs associated with stimulating new drugs, but then notes that the costs appear to greatly outweigh the benefits:

"Research needs money, but the current system results in limited funds being spent in the wrong way. For instance, the human genome project decoded the human genome within the target timeframe, but a few scientists managed to beat the project so they could patent genes related to breast cancer. The social value of gaining this knowledge slightly earlier was small, but the cost was enormous. Consequently the cost of testing for breast cancer vulnerability genes is high. In countries with no national health service many women with these genes will fail to be tested. In counties where governments will pay for these tests less money will be available for other public health needs.

Stiglitz alternative is to use a bounty system that would set up prize money for important pharmaceutical cures and breakthroughs, on the condition that the details of the drugs would then be available to other drugmakers to create generic versions and let the market set the price. It's an idea that has certainly been suggested before, and does present some additional problems (what gets a prize, how big are the prizes, where is the money coming from?), but given how screwed up the existing system is, it's an idea that's at least worth discussing.

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9 Comments

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Wary, 26 Dec 2006 @ 11:18am

Government contracts
It sounds vulnerable to 'cost-plus' government contracts. A 'bounty' to cover the cost of the R&D plus a bonus % paid based upon something like its usefulness? It could work, but it sounds like a utopian world kind of idea to me. The government couldn't handle a high school cookie sale efficiently, much less this, so the less they try to intervene in a market the better I say.

Not to say the patent system perhaps shouldn't be visited upon for discussion, but I don't see why there has to be socialist-style, deep market intervention that would fundamentally try to change the game. Such things always sound good and have good intentions but seldom seem to work, right?
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Jake (profile), 26 Dec 2006 @ 11:37am

I find most telling two quotes in the article. First, "Drug companies spend more on research on lifestyle drugs than on life saving drugs," and "The patent system would continue to play a part for applications for which no one offers a prize." The result of which would be, private companies would still spend just as much on lifestyle drugs. In fact, for-profit driven companies would now be more motivated to develop lifestyle drugs since they could still get monopoly prices. For all of their waste & marketing, drug companies still spend probably $100 billion on drug research. Unless there are prizes commensurate with these amounts, research spending by private companies will inevitably drop. The new drugs may be cheaper, but don't kid yourself thinking there will be as many.
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Frank, 26 Dec 2006 @ 1:58pm

Human Genome is Pharmaceutical?!?
Patenting the human genome is the same as patenting pharmaceuticals? Talk about a non sequitur. Perhaps we can claim that patenting a software virus is the same as patenting a pharmaceutical – after all the word “virus” has a biological sounding name.
Ultimately millions are being spent on pharmaceutical research – most of which leads to nothing of value. When a successful drug does materialize (and makes it through the long and expensive FDA approval cycle), it also has to pay for the hundreds, if not thousands, of failures.
Setting up prize money will only have governments directing which things should be researched; things that may make money, but having neither prize money nor possible patent protection won’t come to market. Viagra ultimately is a failed heart medication and it’s success justified/justifies the research into heart medications.
If I was running a pharmaceutical company and the government decided to go this route, I would immediately cut back my R&D effort – if not eliminate it – and set about to clone the successful drugs that win government backing. That way you’re guaranteed to make money without having the risk of R & D.
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Tyshaun, 26 Dec 2006 @ 4:27pm

It just won't work...
This quote says it all:

The prizes could be funded by governments in advanced industrial countries

The whole point of the theory is to make generics readily available, and a lot of attention was paid in the article to getting generics to those who couldn't afford name brand meds, yet the countries with lots of people that CAN afford name brand meds are going to pay for these "bounties" for achievement? I can hear the cries of "why should I pay for their medicine" (although we do now anyway by generating most of the profits for drug companies, but people won't see it that way).
Not to beat a dead horse here but the proposed system would be extremely expensive to implement and all of that burden would be placed on a small fraction of governments to pay for it. In addition to that, the motivation (profits) for pharmaceutical companies to perform a wide array of research would be nullified and they will become like defense contractors in most cases, doing stuff to meet government specs and get money, not necessarily the things thats best for development (look up the history of the development of the bradley fighting vehicle or the F15 fighter plane).
The issue isn't with patents per-se, but with the standards that currently exist for getting one. I say more effort needs to be made on an industry by industry basis to develop guidelines for patent approval that protect novel ideas and at the same time protect against monopolies/obvious patents. Durations of patents should be industry specific and perhaps there should be multiple tiers based on the type of patent (a seldom used med may have a longer patent than a frequently used one, to allow more time to recoup R&D costs and also to stimulate companies to not set the prices so high).
The fundamental problem in the pharmaceutical industry is that there is very little reason to develop cures for illnesses in general, and illnesses that very few people get in particular. You can make lots of money with an effective "treatment" for high blood pressure, but not nearly as much if you figure out a way to cure it with a pill (unless the pill is like $10,000 each), and even less if you develop a pill to treat/cure an illness like polio, which is very rare in the modern age but there is a case from time to time in recent history. The point is that maintenance and "life-style" meds are the bread and butter of the pharmeceutical industry and maybe that is where the efforts to "fix" the system should be. This is one area where maybe the bounty system would be mildly useful (to research areas that don't, and never will, have a potential big monetary payoff). On the other hand, I think the money may be better served by just assigning government agencies like the NIH the task of solving rare diseases and finding cures rather than treatments for common ailments

As per access to medications in the third world, a lot of countries have kind of taken the "mp3" view of generics. They make and distribute copies of the name brands without permission from the pharmaceutical companies. While I'm a strong opponent to doing this to movies and music, for life saving medications perhaps doing the Robin Hood thing is the way to go. On paper we all look like we play together and patents are truly worldwide, in reality the sick people get what they need at an affordable price. Seems to me that's the only way to solve the problem, plausible deniability/looking the other way.
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wary, 26 Dec 2006 @ 5:07pm

Re: It just won't work...
So two good take aways from what you said then, perhaps.

a) Bounties in general = dismal idea. Bounties on cures, on the other hand, might encourage developments.

b) Third world countries illegally producing medicine is breaking the law, yeah. But the industrial world probably doesnt lose much money over it, and once those countries start to ascend the economic ladder, they'd either voluntarily or be forced to crack down on those things once they could afford to anyway.
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Shaun, 26 Dec 2006 @ 10:06pm

Re: Human Genome is Pharmaceutical?!?
There are such things as "RNA Blockers" which are drugs that essentially "turn off" sections of DNA by blocking the RNA sygnals from them. So basically if you find out that the combination of genes Y Z and X make you 50% more likely to get breast cancer in theory you can create RNA blockers for genes Y Z and X and get them back to the normal chance of getting breast cancer. But if genes Y Z and X are patented then you would have to pay the patent holder to produce these drugs or most likely not make them in the first place.

So you see patenting genes has EVERYTHING to do with the pharmaceutical industry.
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Frank, 27 Dec 2006 @ 7:46am

Re: Re: Human Genome is Pharmaceutical?!?
There are such things as "RNA Blockers" which are drugs that essentially "turn off" sections of DNA by blocking the RNA sygnals from them.
Thank you for explaining my point for me. What you're effectively saying is that if I patent a software virus (human genome) I can sue the anti-virus companies (RNA blockers) for detecting my virus. Sorry, that’s a misapplication of the patent.
The patent holder for the human genome would either have to sue God or parents who use his "invention" without their permission.
Using an obvious gross misapplication of the patent system in order to brush away the entire system is disingenuous.
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Matt Bennett, 27 Dec 2006 @ 12:13pm

Patenting genes is even more retarded than patenting software. It's a naturaly occuring thing. It's like patenting "rubidium."
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Paul G Fairhurst, 14 Dec 2008 @ 3:37am

Bounty for innovation
Curiously this suggestion begs the simplest of questions; How in reality a bounty system would differ from exsisting patent protections. The granting authority offers currently offers a reward by granting normative scarcity of the innovation allowing the innovator a limited period to exploit the innovations commercial value.In return the innovator must release this innovation for public use after the expiry of that period. In this way the "prize" is determined by the market need and the cost is borne by the society itself. Innovations with little or no merit receive no reward and noone is the sole arbiter of value except the market. The signal issue against the current system could be that the reward is defined by an arbitrary term of 20 years and innovations critically needed allow the patent holder too much license in profit margins in explioting its innovation. In other ondustries where the innovation cycle may be less than 18 months the innovation is limited by redundancy. In pharmaceuticals it would be ideal to set a taxable value on each invention and define the scope of the grant accordingly. Once the company has recoupoed this value the patent would expire.Thus tying the reward to reasonable social value.
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