How Capitalism Will Make Sure You Don’t Have New Medicines
Posted by
Kevin
This is an excellent post on how the financial incentives of our intellectual property regime are drying up new medicine research and production:
The report then critiqued the drug industry’s corporate culture, framed by the demands of Wall Street. The financial incentives formed by the stock market force R&D decision-makers to focus most of their attention on developing blockbuster drugs for proven mass markets. Minor aches and pains, allergies, depression, cholesterol management, acid indigestion – the rewards for a successful new entry in one of these categories, whether or not it represents a significant new advance over previous therapies, are measured in the billions of dollars in sales.
… This trend, noted in the GAO report, led the auditors to conclude that the nation’s patent laws were one of areas in need of reform if industry was going to refocus its attention on medically significant products. A series of laws and court rulings have given manufacturers the right to obtain new patents for minor changes in chemical structure, changes in routes of administration, and new uses for old products. These patent extenders provide substantial financial rewards to firms that focus their research attention on extending the marketability of their existing products instead of focusing on the truly new and innovative – always an inherently risky proposition.
The logic of modern capitalism dictates this situation. Companies will do what it is easiest and safest to make money, and that means hundreds of knock off drugs and drugs for minor or nuisance problems at the expense of therapies of major medical problems. Investors want the blockbusters, and so pharmaceutical companies try to provide those in the fastest and most-risk averse way. Combine that attitude with the existence of patents and with the ability to extend a patent for minor changes, and you have an industry where real innovation is being driven out.
The patent problem is rather interesting. Patents, whatever ill they do, are a requirement for modern capitalism. If anyone can sell your ideas, then there really is little incentive to commercialize them. In fact, since you may have to include the cost of research and development in your pricing, you could start out at a serious price disadvantage to your thieving rivals. But the existence of patents opens up another way to make money: manipulating patent rules. Coming up with new discoveries and then translating those discoveries into new treatment regimes is hard work, filled with uncertainty. Manipulating the patent laws to allow you to monopolize a market for an extra number of years is comparatively easy and comparatively less risky. Given those facts, the situation we find ourselves in today was pretty much inevitable. The rules of modern capitalism ensure that.
The only way out of this mess is fairly intrusive government regulation. Patent laws have to be changed to prevent the kind of extensions we see know, and the government has to use the power of its research budget to force the companies that benefit form that research to be less blockbuster focused and more general needs focused. Without those kinds of changes, the rule sof modern capitalism will ensure that the drying up of new medicines will continue.
Link via Ezra Klein at his fancy new digs.
Alternate title: “How the Federal Government’s Patent Program Will Make Sure You Don’t Have New Medicines”. I suppose it depends on your predisposition.
Comment 12/12/2007
A distinction without a difference in this case. The driver here is the profit motivation; all the patent law does is set the conditions under which that profit can be obtained.
But patent law notwithstanding, it’s self-evidently true that it’s a lot easier and less risky to make money by providing treatment for a minor condition that affects many people than it is to provide treatment for a serious condition that affects relatively few. Prilosec OTC has a lot more profit potential than, say, a drug that treats AIDS, just based on the sheer number of affected people.
Comment 12/12/2007
Ted
There is a certina amount of truth to that, but as I said, I don’t see how modern capitalism can function without a patent system and once you have a patent system, you will have people trying to game it. Unless you have a strong commitment to government control of these aspects of the market and government regulation in general, I think its almost inevitable that we end up in the mess we are currently in. All the financial incentives point to it.
Comment 12/12/2007
Guys, please reread the tile to the piece. In particular, the two words “make sure”. Just because capitalism does not provide a solution does not mean it prevents it from happening. Does capitalism “make sure” we have hurricanes in the fall? Also, because capitalism does not result in a solution in one case does not mean it is not viable in other cases.
If our society decides it is worthwhile to pursue a specific goal that is not being pursued by the free market, the government can take it on (think space exploration) or private foundations can be created (there are a fair number of these dedicated to specific diseases).
Comment 12/12/2007
Ted
Yes, capitalism as practiced today does make sure of this. I laid out the argument as to why that is. I am not arguing that capitalism doesn’t provide a solution so therefore it is the problem. I am directly arguing that modern capitalism is the root cause of this problem.
Comment 12/12/2007
You have explained how capitalism fails to provides drugs - you have not explained how it blocks others from doing so.
Comment 12/13/2007
Ted
Fair point. The assumption behind this post is that modern capitalism fights government action. They have fought government provided health care, passed laws to prevent governments from operating municipla wi-fi, fought fair leases on government property for mineral rights, etc. Anywhere someone can make money, they will try to prevent government action from preventing private parties form reaping those rewards. The ideology of laisze-faire capitalism also supports that.
Correct me if I am wrong, but the current agreements regarding the way patents are handed out for government research pretty much prevents the government form bringing any drugs to market. Given the ideology and history, I am not sure why that would not be fought by business interests and believers in capitalism uber alles.
Comment 12/13/2007
“Correct me if I am wrong, but the current agreements regarding the way patents are handed out for government research pretty much prevents the government form bringing any drugs to market.”
True, but it would be a minor step by the govt to ensure their R&D is brought to specific markets by the private sector. Same for Foundations. And there are always socialist goverments that could do it.
Comment 12/13/2007
[…] • Lean Left: Financial incentives that discourage pharmaceutical research, plus: Good argument against FISA immunity […]
Pingback 12/16/2007
Garden Fountain Freak…
And how is it working for you, it has been some time between now and this post, i was just wondering if you are happy with it….
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