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Can pharmaceuticals be developed without patents?

“No possible good can ever come of a Patent Law, however admirably it may be framed.”
- The Economist, 1851

Many people can imagine a world full of innovation that does not have patents. But when they think of pharmaceuticals, this seems like an exception. Pharmaceuticals are relatively simple to produce but have high research and development costs. So it’s obvious, surely, that there have to be patents in pharmaceuticals.

This exception, however, may not be as necessary as people think. Two economists have researched the history of chemcial and pharmaceutical innovation. Michele Boldrin (Professor of Economics at the University of Minnesota) and David K. Levine (Armen Alchian Professor of Economics at UCLA and co-editor of Econometrica) argue (PDF) that it is not the case empirically that patents increase pharmaceutical innovation. Among the examples they give, they point to Italy. In Italy there were no patents on pharmaceuticals until 1978. Bear in mind that countries like India and even African nations are told they need patent protection in order to develop economically. Yet between 1961 and 1980, 9.28% of the world’s new molecular entities (NMEs) came from Italy. NMEs are the most important advances in pharmaceuticals as they represent leaps rather than just gradual progression. The authors suggest that after patents were introduced, Italy actually became less innovative, not more.

The example of Italy will be puzzling to many because it is totally contrary to everything the pharmaceutical industry says. Interestingly, before Italy introduced patents, its pharmaceutical industry contained lots of players: patents quickly reduced the number of companies involved. No wonder Big Pharma likes patents: they restrict competition.

31 comments to Can pharmaceuticals be developed without patents?

  • Jake

    “Pharmaceuticals are relatively simple to produce.”

    That is not always true. Many times the research needed to determine how to produce a drug in quantity takes longer than the original research to discover the drug. That is why universities never produce the drugs they invent.

    There are 13,000 drugs on the market half of them are off patent. So all the easy drugs have been discovered. That is why there are fewer new drugs coming to the market every year. This blinding flash of the obvious did not occur to Boldrin or Levine.

    It takes a $500 million and 12 to 15 years to discover and bring a significant drug to market today. Who is going to invest that kind of money without patent protection?

  • An idea I’ve been kicking around is the possibility of phasing out pharmaceutical patents and replacing them with X-prize style prizes for coming up with a drug that achieves or that medical objective. The prize could be increased by x amount of dollars every year that it went unclaimed. My instinct is that this would be more efficient than the patent system, but admittedly I haven’t crunched the numbers.

  • I can only wonder how the removal of such destructive agancies as FDA might affect the situation.

  • fiona

    It takes a $500 million and 12 to 15 years to discover and bring a significant drug to market today. Who is going to invest that kind of money without patent protection?

    One could argue that most of this time and money is spent jumping through completely unnecessary regulatory hoops that don’t protect the public anyway. So get rid of those as well.

  • Indeed fiona, I’ve seen it cited before that regulatory compliance costs to bring a new drug to market in the US are typically 5-10 times more than the other R&D.

    And as we’ve seen recently with the Vioxx and other withdrawls from the market, that long and expensive FDA process doesn’t actually test for after-market safety!

    All that for nothing!

    I imagine that one could easily halve that cost and change the remaining regulations to more comprehensively test for safety. Probably not going to happen, at least I’m not holding my breath waiting for it.

  • ic

    There is no fun suing little pharma because there is no money there. Long live the Big Pharmas for the sake of trial lawyers.

  • Chris Harper

    Matt,

    The X Prize is a great idea to encourage innovation within a carefully scoped area, but it is less use if the objectives are fuzzy, and is useless in encouraging serendipity.

  • xj

    before Italy introduced patents, its pharmaceutical industry contained lots of players

    I would be more interested in knowing how many new, groundbreaking drugs were developed by these Italian firms under the no-patent regime. ISTM that R&D is the only credible argument the large pharma companies put forward to justify the patent system.

    (Anecdotal but interesting: pharma companies sometimes claim that if R&D spend was accounted for the same way physical investment is, ie capitalised, the pharma companies would be barely earning their cost of capital. A former professor of mine from business school once did this exercise, as a consultant for a pharma company, and what he found was that even if you do capitalise R&D the pharma companies earn way in excess of cost of capital, every year.)

  • Your point has some merits. Big Pharma are currently manipulating the patent laws to attempt to “evergreen” their blockbuster drugs and get longer exclusivity periods.

    However……..Big Pharmas’ pipeline is running out fast. Over the next few years $50 billion come off patent and there are nowhere near that many blockbusters to replace them.

    Big Pharma are buying up small biotechs for their products in development (see my recent posts on PharmaGossip about AstraZeneca).

    But The Big Pharma Dinosaur model is sick (Pfizers boss recently used the word “survive” regarding its future).

    Love the blog. Have added to my site.

  • John Thacker

    NMEs are the most important advances in pharmaceuticals as they represent leaps rather than just gradual progression.

    Bzz. They don’t represent actual drugs, nor do they represent economically efficient ways of producing those molecular entities. Ask any medicinal chemist the difference between producing some new chemical in the lab, and determining how to produce it cost effectively, demonstrating its efficicacy and safety, and showing that what works in a petri dish actually works in vivo. Academics are always terribly confusing the two things.

    In any case, I’ve never stated that there have to be patents for pharmaceuticals. It’s just that the natural alternative is government-funded research. (Prizes for curing specific ailments could also work, certainly.) And Italy surely had a lot of that. Note that most evidence shows that government-funded and academic research concentrates on producing NMEs, but not on how to make them efficiently, safely, in large quantities, and showing that they actually function in humans as a drug.

  • Jake

    Almost all drug research on AIDS for the past 20 years has been funded by governments and not by industry. What do we have to show for all of those billions? We have definite proof that there are many drugs that do not cure AIDS.

    Government sponsored research is a black hole where billions goes in and nothing comes out.

  • stoatman

    People often seem to forget the quid pro quo of patents — in exchange for exclusive exploitation rights for a time-limited period, you have to tell the rest of the world enough about your product or process to enable the “man skilled in the art” to produce it himself. This enables others to pick up your invention and develop it further. It also encourages you to develop it further, since once your patent expires every man jack can exploit it.

  • I always have to ask critics of pharmaceutical companies:

    How much of your money do you risk on developing drugs?

    It would seem that sheer self-interest on the part of critics would lead themto invest in pharmaceutical companies since they seem to view them as organizations to print money, yet few seem to do so.

    We basically have two choices in managing intellectual resources of all kinds: (1) a private property system with all its warts or (2) socialism. If a decision-making about a resource cannot be effectively allocated to private entities via a property mechanism then state will allocate the resource via politics.

    The destruction of intellectual property rights will inevitably lead to a new era of sweeping socialism, except in this era it will not be factories that get nationalized but research, art, software and media. State sponsored intellectual products will push private ones out of the market because only the state backed products will have a secure source of funding.

    Big, evil corporations will still dominate the markets because competition will shift from innovation, which favors the new and small, to production, distribution and marketing which favors the old and large. No small players will ever crack the big time because the established players will simply steal their ideas and get them to wider market much sooner.

    So make your choice. If you want to live in a world where politicians control the production of virtually all information then by all means pirate media and violate patents but if you want to have some freedom and some hope that people can actually make a living producing information, then you should think long and hard how to make intellectual property systems work.

  • The argument shouldn’t be whether or not patents make the industry more or less efficient, the argument should be whether or not patent law is moral. The most efficient solution is not necessarily the most moral–for instance, oil production in Iraq could be kept safe from terrorists, and thus be made more efficient, if every single person not a member of a western military were slaughtered. Obviously, this would not be moral.

    So are patent laws moral? I would argue that in general they are for the same reason that copyright laws are moral. If Person X devotes Y time and Z money towards developing a product or service, then that person deserves to benefit from the use by others of the product. It’s as simple as that.

  • From my understanding of patents, the original comments are puzzling, concerning the relationship between no pharma patents in Italy and R&D there.

    My understanding of patents is that they are issued by a national government concerning the right to manufacture and use an invention or inventive (manufacturing) process in that country.

    Accordingly, pharma R&D could be done in Italy (or elsewhere without patents). The product or process could be used there without payment of royalties. However, patents could be taken out in other countries, to prevent unlicenced manufacture and/or use in those countries.

    Conversely, pharma stuff developed and patented outside Italy could not be protected (pre-1978) against copying, manufacture and use inside Italy.

    Typically, developers do not patent in every country in the world offering patents, but only in a sufficiency of countries to make it uneconomic (on grounds of lack of scale of production and/or sale against the originator and his licencees) for unlicenced copying, manufacture and sale. [Note: there is a potential problem for users who carry a product into a country where a patent applies.]

    This is, in my understanding, how things work for electronic and similar inventions. I assume it is the same or very close for pharma products. Could anyone throw knowledgeable light on this please, on whether I am right or wrong, in whole or part.

    [PS: Apologies to those wishing to access my company website. It's down because of hardware failure; likewise company email. They should both be back up by the beginning of next week.]

    Best regards

  • Nate

    NIgel,

    I believe that certain treaties/trade organizations require a mutual respect for patent rights. That is, I *believe* that
    the UK must honor US patents and vice versa, or at the
    least grant certain privileges to prior patent holders.

  • veryretired

    It always fascinates me when someone argues that a particular right, or individual rights in general, should be recognized and protected or, conversely, denied and abrogated, based on the potential outcome.

    This utilitarian perversion of the concept of rights, including property rights, and specifically intellectual property rights, is a grievous error which often intrudes on what would otherwise be useful discussions.

    All property rights are intellectual property rights. It is the idea that creates value, that makes possession of a certain type of property, from a vineyard to a chemical formula to a design for a fusion power plant, worthwhile.

    If you do not believe that drug formulas are crystaline ideas, not mere assortments of molecules, go stand in the middle of a chemistry lab and wait for the chemicals to come together to cure your dandruff. You will have a long, itchy wait.

    It may very well be that people want and need medicines. It may very well be that a certain number of chemists would donate their talents to provide people with the drugs they require.

    It does not follow that all persons involved in making a living by participating in the development and manufacture of medicines should forfeit their chance to enhance that living by having their ideas and processes made public without compensation. For, in the final analysis, that is all a patent really is—a legal right to charge for the use of an idea.

    There was a long, pointless, and mostly erroneous discussion of property rights here a few months ago. I didn’t get involved then because I had better things to do, and I’m not interested in starting that whole thing up again.

    Property rights exist because the actual value of any atom of matter, or any idea, is the amount of intellectual exertion that went into rendering it useful for human life. This applies to the wooden stick that became a spear, the flint and iron that made a fire, the patch of ground that became a garden, the cow that became a dairy farm, the hut that became a pottery, or the labratory that developed aspirin and is now working on a drug to alleviate (fill in the blank).

    The mind is life. Rights belong to the individual because the independent mind requires them to function as a fully human entity. Intellectual property rights protect the highest, and most human, expression of the concept of property.

    I am not surprised that they are so often under attack, as they are the foundation of everything else. Cut off the root, and the tree will die. Deny the mind’s right to its own effort, and what else is left to quibble about?

  • stoatman

    Nate,

    No — patents are territorially limited. A US patent is valid in the US, and the GB patent is valid in the UK. Even European EP patents are not enforceable per se and are transformed into a family of individual national patents after grant.

    There are countries which sometimes have unified patent systems, for instance Switzerland and Lichtenstein have one. But this is the exception and not the rule. Indeed, on the front page of aCH patent, it says “patent of invention for Switzerland and Lichtenstein”.

  • lucklucky

    How the existence of patents reduce the players?
    If someone wants to develop without patents still can do it? or not?

  • rob

    when you say 9.28% of the world’s new NME’s came from Italy, is that from private companies doing their own research? it’s not clear from your post; is it clear in the article? if they came from university labs (presumably funded by the government?), then that doesn’t tell us much, does it?

  • To Shannon Love: WELL SAID!
    So make your choice. If you want to live in a world where politicians control the production of virtually all information then by all means pirate media and violate patents but if you want to have some freedom and some hope that people can actually make a living producing information, then you should think long and hard how to make intellectual property systems work.

  • pdcoleman

    It is believed by some genetiscists that almost all basic and cronic disease are caused by bacteria, viruses and golden BB energy particles that transform cellular DNA. A cells operation is influenced by electro chemical action of the system as well as its own genetic microcode.

    Much to the distaste of Iron Lung makers and physical therapists, Polio was defeated when the cause and solution were understood discovered.

    For hundreds of years it was believed that peptic ulcers where caused by certain foods or stress. I had friends that where hospitalized as recently as 15 years ago. It is now known that it is a bacterial infection simply treated with antibiotics.

    The well known viruses are the “cold and flu” which make us immediatly sick, begging our bodys to heal itself. What about viruses that don’t make us immediated aware of their danger. They infect us in subtle ways. They modify cells in a minor way producing a little more or a little less of a desired chemical output that effects neighboring cell behavior.

    Big Pharma hates disease research because it can offer a cure and there is no money in a cure.

    Most money today is spent on feel good drug research and a very little on identifying the bad actors and methods to eliminate them.

  • Richard Thomas

    And then, perhaps the utilitarian question to ask is not whether it would take longer for new drugs to be developed in a de-incentivised patentless world but whether the suffering caused thereby would be offset by the suffering alleviated by people being able to *afford* the drugs that already exist.

    Here’s the thing to bear in mind though, people want to live, people don’t want to suffer. People will find *some way* to invest their money in developing pharmaceuticals. Pound to a penny that they would find a way that was more efficient than the big-house-and-fancy-car-for-the-execs model encouraged by the government enforced monopoly model of patents.

    Rich

  • jmh

    Jake points out that we do not have a cure for HIV despite millions of dollars being spent on it. My girlfriend works as a HIV nurse in London. Apparently, the current advice to people with HIV is that with the current retro-viral cocktails you may well live to your normal life span. Secondly, she is continually taken out by big pharms interested in influencing her about their products, so I’m very sceptical about his claim that there is little pharma investment in HIV.

  • pdcoleman said: Big Pharma hates disease research because it can offer a cure and there is no money in a cure.

    Except that they do such research. For example, Merck is currently in the news because of its breakthroughs in a cervical cancer vaccine .

  • Fabian Wallen

    Beck and Veryretired,

    There are at least two important problems with making a case for patents, or intellectual property rights altogether, on pure moral grounds.
    First of all, the necessity of property rights is based on the tendency of resources to be scarce. If resources were not scarce, we would not need to restrict the use of them with property rights.
    Secondly, anyone defending intellectual property rights on a moral basis need to explain the justification of a time limit on this particular “property right”. If you create something, and hence you are the righteous owner, why should your ownership expire after 20 years? Some extreme objectivists argue that there should not be a time limit. Well, I for one am glad that was not the case back when some genius first came up with the idea of creating a wheel. Imagine if car manufacturers and bicycle companies, and thus consumers, would be forced to pay huge licence fees to the distant relatives of the man who, supposedly, invented the WHEEL®…

  • Joel Català

    The problem are not patents, but governmental regulation, and all state interference in the (drugs) market.

  • Jake:

    It takes a $500 million and 12 to 15 years to discover and bring a significant drug to market today. Who is going to invest that kind of money without patent protection?

    Boo hoo. Without tariff protection, who is going to invest in American automobiles?

    Shannon Love:

    If a decision-making about a resource cannot be effectively allocated to private entities via a property mechanism then state will allocate the resource via politics.

    Property rights are not “allocated to private entities” by the State. They are earned by honest labor. The real choice is not between State-granted tenure to private monopolies (fascism) or total State property (state socialism); it’s between individual rights and State piracy of any kind.

    How you apply this to the issue of government-enforced patent restrictions I’ll leave up to you.

    Beck:

    So are patent laws moral? I would argue that in general they are for the same reason that copyright laws are moral. If Person X devotes Y time and Z money towards developing a product or service, then that person deserves to benefit from the use by others of the product.

    You’re right that the morality of patent restrictions is the real issue here, not the consequentialist pay-off. I’m baffled by your moral case for patents, however. People deserve lots of things; for example, I think that William Lloyd Garrison deserved a million dollars rather than a life lived constantly on the edge of penury for his long and difficult labors against the evil of slavery. But it doesn’t follow from the fact that somebody deserves a certain reward that they have the right to extract it by force. Which is of course what copyright and patents do: create monopoly profits by forcibly suppressing competitors.

    You might claim: “Well, look, if I put my time and work and hard-earned money into making an automobile, that’s my property, and I have the exclusive right to sell it. Stopping competitors from selling the car I made isn’t extracting a monopoly profit by force, in any interesting sense; it’s just suppressing brigandry. It’s the same way with ideas for new drugs or with the book that I just wrote.” But there’s an obvious difference between the two cases: in order for me to take the car you made and sell it, I have to deprive you of your ability to sell or use it. That’s why it’s robbery: I deprived you of the property that you own. In order for me to “sell” an “idea,” I don’t need to deprive you of your ability to sell it. I can independently discover it by investing my own time, money, and labor without interacting with you at all; or I can discover it by investing my own time, money, and labor in taking apart and understanding your invention after I buy it; or you can tell me your idea and I can turn around and use the idea you’ve given me. But in all of these cases I’m selling things while leaving you in full possession of your idea. So what have I robbed you of? Nothing. You still have exactly what you had before.

    You might point out that, while I’m not depriving you of the chance to sell the expressions of your idea, I am depriving you of the chance to sell the expressions of your idea at the rate you think you deserve. No I’m not: you can sell it at any rate that you want to, and customers will make their own decisions as to whether or not to buy it. You might point out that by underselling you on expressions of your idea, I’m depriving you of customers who might otherwise buy it at the higher price. Well, so what? You don’t have an ownership claim over customers. Sorry.

  • Ryan

    To those of you who think patents are unnecessary:

    Why don’t you take out a huge loan (say $500,000,000), invest it in the R&D and production of a new drug, and then send me a copy of your findings. That way I will be able to produce the drugs and sell them to the public myself without having to invest all that money.

    No rational person would invest such a huge amount of time and money into pharma if there wasnt a protection in place that made it possible for them to make a profit off of their findings.

    There is a time limit on the patent in order to have the best of both worlds. The patent allows for an incentive for innovation because of the ability to make a profit from your investment, and the time limit allows for the eventual decrease in prices through the competitive market that emerges after the patent expires.

    Without the patent protection there would be far less innovation in pharmaceuticals, and without the time limit on the patent, prices would remain unnecessarily high. Both aspects are necessary, so we put up with high prices for awhile to encourage the future production of new drugs.

    Read this paper: http://levine.sscnet.ucla.edu/archive/grabow-patents_innov.pdf

  • No rational person would invest such a huge amount of time and money into pharma if there wasnt a protection in place that made it possible for them to make a profit off of their findings.

    Again, boo hoo. This is an explicitly protectionist argument, and like all protectionist arguments, the answer is: if they can’t earn a profit on their product through honest labor, without the benefit of protectionist trade barriers, then they need to think harder about their business model. Big pharma’s failed business model is their problem, not mine.

  • Ryan

    It becomes your problem if you get a disease that no cure is invented for because there is no profit incentive leading pharma companies to pay for the R&D and other costs associated with making the drugs.

    The problem is not their business model; it is the fact that without patents the generic drug makers would enter the market for a specific drug as soon as the original did. Therefore the company that invested their money into the R&D and other costs associated with drug X would then have to face the same market price as the generic companies (a significantly lower price than they would otherwise face). This would make it unlikely that they would be able to recover their costs and make a profit equal to alternative investment strategies. Without patents there would be a very strong incentive to simply wait for other companies to pay for the R&D and then copy their drug and make your own generic version. And since most companies would adopt this strategy, innovation would decrease significantly in the pharmacuetical industry.