A Patent Waste

-- By SamWells - 17 Apr 2010

Scene 1

When I moved to New York last year, I developed a serious infection in one ear. I soon lost hearing on that side. Because I did not have medical insurance, and could not afford prescription drugs, I decided to wait it out.

When the infection dragged on for two months, I hounded an old friend, then in medical school, to find out the proper prescription treatment. I ordered the drug online, from an illegal website based in India. On the brown paper envelope that came, my address was written by hand, to avoid customs scrutiny. Inside were instructions, and a plastic bag with a handful of pills. I took them, knowing I ran a risk of receiving a placebo or a harmful side effect.

My ear infection seemed to improve for a few days, but then returned suddenly. I eventually recovered, but not for another three months.

Why are drugs, small and cheap to manufacture, so expensive?

Scene 2

At my legal practice workshop moot court session, the alumni judge was a general counsel at Purdue Pharma, a drug company based in Connecticut. He was a polished, soft-spoken guy, who told us that his job involved handling thousands of lawsuits at any given moment. Most of the suits sprung from side effects of Oxycontin, a highly addictive and frequently abused painkiller Purdue manufactures. Despite the nature of the drug, the company always wins. He is an evil man, in the words of a third year who was also a judge.

I went up to him and asked him why he thought that drug patents were needed, especially when researchers get their funding from public sources. I also explained that, in theory, it is possible to incentivize the whole drug development process without limited-time monopolies, making patents superfluous and drugs cheaper for all.

He said that he, too, thought that drug prices were too high, and that in Africa this is especially true. There are cheap anti-retroviral (HIV) and anti-malarial drugs that could save millions of lives. So we have to ask ourselves, he said, is that level of deaths something that we can tolerate? He then said that I should look into the price reductions that have been forced on drug companies by the World Health Organization in recent years in connection with this, giving AIDS medication at low cost to much of Africa. Interesting, I said, but that didn’t answer my question.

I asked again, don’t drug companies usually just buy licenses from university researchers, rather than developing new cures themselves? After much diversion, he admitted it.

The Process

University researchers invent useful, potentially lifesaving compounds. These compounds are then patented, and the patents are assigned to the university as part of the researcher's employment contract. The university eventually licenses the patents to pharmaceutical companies via auction, and the pharmaceutical companies sell the drugs to the public.

I asked him what, if anything, the pharmaceutical companies really did. He said that they run the clinical trials for drugs, and pay for marketing. He said that the real problem with a system without drug patents is that no one would be willing to spend the $100 million needed to bring a new drug to market. Patent rights, providing a limited monopoly, ensure that the outlays are recouped in profits. Also, he said, patents are in the Constitution, so they cannot be overturned.

Bullshit. The Constitution reads: “The Congress shall have Power To… promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Nowhere are patents mandated; they are just permitted. The law on the subject, Title 15 USC, can be changed by a simple majority.

In the present system, patent revenues at drug companies do not motivate actual drug discoveries. Most pharmaceutical revenues do not pass through to universities, but go to marketing, clinical trials, litigation, and profit. The real brains behind the operation, the researchers, are incentivized by competition for NIH and NSF grants. These grants allow the construction and staffing of university labs. The money is scarce, so researchers are motivated to produce real breakthroughs. The GC, surprisingly, admitted that Pfizer’s team of 200 lab scientists has been unable to come up any useful discoveries in the last two years of work.

Clinical trials do have to be paid for by someone, and it is an admittedly complex process. I can imagine that there are many innovative, well-conceived options other than those that I mention below.

One possibility would be for clinical trials to be government run and publically funded. Drug formulas that thread the gauntlet would be available to any manufacturer interested in bringing them to market. In this way, cost sharing among the entire class of benefited persons- that is, the public- would make manufacture and marketing of drugs affordable for private firms without monopolies. The success of generic drug manufacturers shows this is possible. The savings in patent litigation would be tremendous, and passed on to consumers. Another benefit would be the elimination of perverse incentives that now cloud the clinical trial process, resulting in falsified trial data and analytical abuses.

A second option for decoupling clinical trials from individual drug companies would be to create a publicly available pool of useful therapeutic formulas. This shared resource, drawn from universities and tied to them through licenses, could be governed by a private overseeing body that runs clinical trials for all drugs in the pool. The clinical trials could be supported by fees collected through a mandatory licensing scheme, again making drugs available to all manufacturers. Both options are feasible.

When I first began the conversation with the GC about drug production without patents, he said, with sincerity, and a little trepidation, “Well, boy, wouldn’t that be an ideal world.” It really would be, if not for the excuses.