E-DRUG: Medicines for the needy - Patents and Costs
Thanks for the note. I work as Professor in Maastricht without pay, and
for the past several years have foregone salary from a small but growing
company in order to strengthen its balance sheet, taking the risk that
the eventual rewards will be considerably greater, though the last
start-up firm I did that I should have taken the salary.
Marketing abuses, hyper-promotion, paying susceptible docs to
overprescribe new medicines, a plethora of me-too medicines, and other
forms of commercial mischief are side effects of an incentives-driven
system of pharmaceutical innovation. But, like democracy, which has many
lamentable side-effects, it is the best system around.
A basic constraint, easy to lose sight of, is that pharma R&D has
a high risk of failure, and so is a high-risk investment. There is a
marketplace for high-risk investment capital, and it asks high rates of
return, which, if not forthcoming, causes the money to go elsewhere, into
other high-risk investments that will generate high rates of return if
successful. All high-risk investments depend on protection of property
rights, which can be tangible in the case of oil wells or gold mines or
factories, or intellectual in the case of computer software, musical
compositions, or compositions of matter that happen to have medicinal
Patents in the leading industrialized countries insure that pricing of new
pharmaceuticals can be such that a suitable rate of return can be gotten.
If you study the price-earnings ratios for major pharma company share
prices, you will see them running from 20 up to 60 or more, depending on
the market's valuation of the chances that new products will fuel earnings
growth. Such firms typically invest 15+% of their turnover in R&D, and
history, as I read it, would suggest that pharma firms that cut back on
R&D do poorly in the long-run, while those that maintain a strong R&D
program, with investment in the 15+% of turnover range mostly fare pretty
well. Not all, of course, witness Syntex which was running at around 20%
investment in R&D -- an industry high at the time -- before it imploded
and virtually disappeared after its acquisition by Roche. That's a
reflection of the risky character of the business. Wyeth-Ayerst recently
lost a long-acting angiotensin II receptor inhibitor in late phase III
testing (tasosartan) because liver enzymes started popping up in the
expanded population of test subjects -- a cautionary tale for anyone who
argues that R is high risk and D is low risk. Then there are marketing
flops, of which one of the greatest was MSD's oral form of timolol as a
systemic beta blocker for post-MI use, hypertension, angina: no drug until
VIAGRA had such advance billing as a wonder-drug, but their peak sales
never execeeded $5 million per year, because Wyeth-Ayerst managed to beat
them to the punch, so to speak with a paraphrase of Gertrude Stein that "a
beta blocker is a beta blocker is a beta blocker". Ancient history (1977,
as I recall) but illustrative that the risks don't stop just because the
product has been registered, for a big investment in initial marketing is
necessary to bring a new pahrmacetuical into wide usage.
So, the incentives created by high returns, created by high prices,
created by the temporary monopoly and technology disclosure, created by
patent protection, create an engine that cranks out innovative
pharmaceuticals. The rich folks of the world, who can afford to pay the
prices, fuel the engine, and, after the patents expire, which occurs in
10-12 years for most agents, and 20 at the worst, then the prices tumble
and the medicines are much more widely available because they cost less.
So an attack on patents, done in the name of helping the poor, is like the
classic socialist argument of social ownership of the means of wealth
creation -- a fake because, in destroying the incentives, it cripples the
system and paralyzes the engine. Those who respond to financial
incentives go off to drill for oil, dive for sunken gold, write books, or
whatever, and the flow of new pharmaceuticals slows to a trickle. Those
who ignore this history court the curse described by Prof. Santayana of
having to relive history.
That's why, in an earlier missive in this "debate", which I had thought
ended when the Evil Empire collapsed, I made reference to the meagre
pharmaceutical innovations of the USSR, notwithstanding its immense
resources, talented & educated people, etc etc. Its 70-yr history
is a stunning demonstration of the folly of eschewing economic incentives.
Several people took great umbrage at my suggestion that, if they felt so
strongly about how the patent system is depriving the needy, they should
give their salaries to the poor, and that we should shift governmental
investments in biomedical R&D to providing medical assistance to the
needy. I think it's a dumb idea to do such a thing, because the system
we have is wonderfully innovative and productive, and it is considerably
facilitated by the huge public investment in biomedical research and
education that has been going on since WWII. But it's not guaranteed to
be that way forever, and it could readily revert to the Soviet model if
the financial inventives were removed.
John Urquhart MD, FRCP(Edin)
Prof. of Pharmaco-epidemiology
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