defending the right to innovate
Monopoly corrupts. Absolute monopoly corrupts absolutely.
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It is commonly thought that patents are good because people reveal secrets rather than keeping them. But they keep secrets about intermediate results so that they can be first to patent. Via Pedro Dal Bo a remarkable video about what happens when pharmaceutical discoveries aren't kept secret. It's a bit ironic that people think that for pharmaceuticals patents are the only answer.
Dean Baker takes issue with a Washington Post story link here on doctors shilling for drugs and drug companies paying them big money to push greater use of their drug including for uses prohibited by FDA link here.
The Post article is a routine description ("fair and balanced" as the big papers like to claim) leading to the fact that the doctors are well-paid for what amounts to treating patients while never seeing them. In some cases they push uses that are criminal, as when they recommend or prescribe a drug for unapproved use.
Baker's problem with the Post piece is its failure to recognize the central role of drug patents in this business. Without the patent, the drugcos couldn't charge the prices that make the big marketing payoffs and their huge profits possible.
Baker fails to note that this might just have something to do with the high cost of health care in the US (highest in the world) or the funding to pay campaign funds to crucial legislators to leave the system unfixed.
Funny how that works, isn't it?
The cost of prescription medicines used by millions of people every day is about to plummet.
A paper Peter J. Huckfeldt and Christopher R. Knittel examining generic entry. Not a great advertisement for patents:
We study the effects of generic entry on prices and utilization using both event study models that exploit the differential timing of generic entry across drug molecules and cast studies. Our analysis examines drugs treating hypertension, high blood pressure, type 2 diabetes, and depression using price and utilization data from the Medical Expenditure Panel Survey. We find that utilization of drug molecules starts decreasing in the two years prior to generic entry and continues to decrease in the years following generic entry, despite decreases in prices offered by generic versions of a drug. This decrease coincides with the market entry and increased utilization of branded reformulations of a drug going off patent. We show case study evidence that utilization patterns coincide with changes in marketing by branded drug manufacturers. While the reformulations---often extended-release versions of the patent-expiring drug---offer potential health benefits, the FDA does not require evidence that the reformulations are improvements over the previous drug in order to grant a patent. Indeed, in a number of experiments comparing the efficacies of the patent-expiring and reformulated drugs do not find statistical differences in health outcomes calling into question the patent-extension policy.
Felix Salmon alerts us to two Kauffman Bloggers Forum lectures with short online video-lectures on drug patents link here.
Salmon writes, "Two highlights of the Kauffman Bloggers Forum were the presentations on the broken nature of the pharmaceuticals market. And they came from opposite ends of the left-right spectrum: Megan McArdle went first, followed by Dean Baker."
John Fountain sent me an email about the first antibiotics, the sulfa drugs. I will quote (slightly edited) what he said:
I found an fascinating example of the way in which competition based on an old (1909) but expired (by 1930's) patent on a sulfanimide used in the dye industry ushered in in the antibiotic revolution in the mid 1930's.
The basics are contained in a wikipedia article.
The interesting facts are that the commercially developed chemical entity (Bayer I think) called Prontosil, for which patents were granted in the 30's, proved to be a flop commercially...because in the human body it broke down into bits and pieces. One piece - the "sulfa" - was the real "active ingredient. I like the authors description here "The result was a sulfa craze"! I guess at that time - 1930's - chemicals naturally occuring in the body weren't themselves patentable!!
No doubt the FDA has a lot to answer for with respect to the slowdown in medical innovation. It's funny though: if we got rid of the FDA then we could get rid of patents as well - imagine a pharmaceutical industry that innovated like the computer industry.
The BBC reports about a drug that was available cheaply, got tweaked in a minor way and now available only in a much more expensive format. While the story is not about patenting, it is very similar to it as it is about licensing a drug, in this case for use in the UK, and excluding the old, yet still perfectly effective, drug from use. This is exactly what a patent does, and there are countless examples of pharmaceutical companies doing exactly these very marginal improvements to extract major rents from sick people.
I've argued in the past that we should both get rid of patents and the FDA. Without the FDA, the problem of having to reveal the secret of a new product in order to get approval is gone. And the FDA does more harm than good anyway. This would seem to confirm that. It's hard to imagine that any benefit from their having kept unsafe drugs off the market will justify their preventing the development of new antibiotics in the face of increasing bacterial resistance. In this case the road to hell may literally be paved with good intentions.
NBER Working Paper #16213 by Heidi L. Williams
This paper provides empirical evidence on how intellectual property (IP) on a given technology affects subsequent innovation. To shed light on this question, I analyze the sequencing of the human genome by the public Human Genome Project and the private firm Celera, and estimate the impact of Celera's gene-level IP on subsequent scientific research and product development outcomes. Celera's IP applied to genes sequenced first by Celera, and was removed when the public effort re-sequenced those genes. I test whether genes that ever had Celera's IP differ in subsequent innovation, as of 2009, from genes sequenced by the public effort over the same time period, a comparison group that appears balanced on ex ante gene-level observables. A complementary panel analysis traces the effects of removal of Celera's IP on within-gene flow measures of subsequent innovation. Both analyses suggest Celera's IP led to reductions in subsequent scientific research and product development outcomes on the order of 30 percent. Celera's short-term IP thus appears to have had persistent negative effects on subsequent innovation relative to a counterfactual of Celera genes having always been in the public domain.
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