Is the Patent Bargain Appropriate for Pharmaceuticals?

Logic Behind Patents

Patents are meant to encourage useful innovation. Originally, patents were a means of encouraging immigration of especially skilled individuals to the United States. In exchange for moving here and sharing their skills, the government gave these individuals a monopoly for a discrete amount of time. To the government, the social benefit of bringing these skilled innovators, as well as their products, outweighed the social costs of awarding monopolies because the individuals would establish themselves in the United States and continue to innovate. However, once the social costs of the monopolies outweigh the benefits of the innovation, patent rights are no longer appropriate.

Currently, patent protection is provided for all useful, original innovation, without any cost/benefit analysis. Lacking such a restriction, patent law extols innovation as a goal to be encouraged unconditionally. This appears to be a hyperbolic valuation. This paper discusses the suitability of patent protection with respect to pharmaceuticals.

Difficulties with Pharmaceutical Patents

Patents for pharmaceuticals are a controversial matter. This is especially the case because pharmaceuticals do not easily fall into the requirements stipulated for patentable inventions. We will first discuss the nature of pharmaceuticals complicating their protectability under patent law, and progress to some of the social costs of pharmaceutical patents.

Originality

Each pharmaceutical patent is based on a single molecule and its affect on a specific condition. From there, new patents arise from the combination of those molecules in order to affect other medical conditions. The originality in a drug is therefore not the materials, nor the use of the materials, but rather the specific combination of the chemicals and its relation to a medical condition. The way that scientists combine the chemicals is based on their physical properties and known reactions. Therefore, how can any “new” combination, based on information possessed by the community, be seen as an original, rather than derivative, work?

Utility

The utility of each pharmaceutical drug is difficult to determine before a patent is given, and that utility is often misleading. A significant difficulty with establishing true efficacy is the amount of time a drug must spend going through the many stages of testing and clinical trials. Because of this time requirement, if we waited to give patents based on the pharmaceutical’s clinical effectiveness, there would be an inefficient number of researchers doing clinical trials all trying to be the first to get FDA approval. (Instead, we have an inefficient number of researchers doing clinical trials after the first drug is FDA approved, but we discuss this later.) The patent process therefore allows patents to be obtained where future research will be needed to determine the true usefulness of a drug.

Even if this utility is established, it presents a misleading statement to the public. For a pharmaceutical to pass the “utility” requirement, it must simply provide statistically significant results of treating the specific medical condition better than a placebo. It need not out perform, nor even perform at the same level as, pharmaceuticals currently on the market. It need only be better than a sugar pill. This utility becomes even more misleading because pharmaceuticals are healthcare goods, and individuals have great difficulty differentiating and evaluating the efficacy of healthcare goods. Even without this complication, the fact that new pharmaceuticals need only treat the medical condition more effectively than a placebo, and not treatments already available, calls into question the true “usefulness” of new pharmaceuticals.

Social Costs

Coupling the questionable utility of pharmaceuticals with individuals’ difficulty of determining their utility creates perverse incentives for pharmaceutical companies. First, FDA approval of a drug incentivizes pharmaceutical companies to market that drug aggressively. The company has already sunk large amounts of capital into the research and development, and will then try to recover its costs and gain a profit by direct advertising to the public and physicians. Because individuals cannot determine the different efficacies of the available treatments, they turn to advertisements and their doctors. Consumers turn to advertisements first because pharmaceutical companies convince individuals to ask their doctors for the company’s pharmaceutical through direct ads. If the drug has some positive efficacy for the condition, which is a requirement for FDA approval, it is extremely difficult for doctors to deny the patient what they want. Even when patients turn to their doctors first, the recommendations are influenced by the massive propaganda campaigns pharmaceutical companies aim at physicians. Since FDA approval does not require any comparison testing of the new pharmaceutical and existing treatments, physicians have no data as to which treatment is best for the patient. The social cost is therefore that individuals are not receiving the best treatment available. They are not aware of what the best treatment is, and are greatly influenced by wanting the “latest and greatest” treatment. (For more on pharmaceutical marketing leading to expensive drugs being used rather than more effective treatments, see the New York Times article on the ALLHAT study here. )

This heavy marketing incentive is compounded by the incentive for pharmaceutical companies to create drugs targeting the same conditions as recently patented drugs. Once one drug for a specific condition receives patent protection, all other companies who ever want a profitable monopoly treating such a condition must patent a similar drug as soon as possible because such a patent is worthless when the first drug becomes generic. This seems to introduce competition into the market, which would therefore benefit consumers, but it is a false benefit. The social ill of confusing advertisement campaign has been already been discussed. In addition to this, the government subsidizes approximately half of the costs of pharmaceutical research and development. Do we really want to spend our tax dollars creating multiple pharmaceuticals for the same condition without evaluating whether that money is going to pharmaceuticals that are better than the already available treatments?

Conclusion

Whether it is necessary to retain some type of protection for pharmaceuticals to encourage development is questionable. It is unquestionable that because of the nature of pharmaceuticals, patent law is not designed to protect these creations, and our society pays for this application of the wrong regulatory scheme.

-- MattDavisRatner - 26 Nov 2008

I realized as I was writing that there were more and more aspects that I had to leave out. I wanted to mention the problems arising from having different protections in different countries which would necessarily lead to a discussion of capital flight, but it did not seem to fit in. I also hoped to provide a little more of a discussion of some possible solutions to the problem, for instance cutting the costs of FDA approval, but without more background it seemed out of place.

-- MattDavisRatner - 26 Nov 2008

I think this essay is a complicated one to write--putting the case for skepticism about pharmaceutical patenting in 1,000 words is hard, because there are so many myths about drug development that go into the story of "the $800 million pill." It isn't easy to indicate the lines of refutation all the way around.

You make it a little harder on yourself, too, by being a less than fully precise on some points. The single-molecule model of pharmaceutical patenting is important to discuss, because indicating the forms of inventing or innovating that would substitute for the patent pipeline requires explaining the relation between basic research into disease mechanisms, the physical chemistry of drug discovery, and the epidemiological nature of 3-stage controlled trials.

You also should have considered describing how patenting changes the incentives with respect to stable, effective treatments. The Allhat study on hypertension drugs and the marketing effort that followed, described in the New York Times on November 30, as well as the fate of the Lipitor patents which so intimately involve the same subject matter, would make a feasible case study. These issues are far more important to the realities of pharmaceutical development than capital flight arising from different terms of patent protection, which is not a real-world issue. Contemporary pharma, dependent on statistically significant treatments for lifestyle diseases, rather than the "wonder drugs" that cured acute life-threatening infections for pennies, maximizes revenue by treating richer people: capital flees poverty and its diseases, not shorter patent terms.

-- EbenMoglen - 01 Dec 2008