I was struck by how little effort the author put into describing the proposed solution for "the poster child for patents." Is the Atlantic going downhill?
How do you let drug companies recoup costs quicker without reducing the oversight that goes into drug approval? I am also a little curious about the free market implications. Instead of the invisible hand guiding drug development we will be relying on government autocrats? It seems that the incentives for governments to lengthen patent protection would just shift their nefarious attention to the prize system and drug approval process.
I don't see (har har) an invisible hand guiding commercial pharmaceutical development. I see an oligopoly of pharmaceutical corporations acting out of unenlightened self interest. From my layman's perspective, it seems that curing diseases is largely done by government- and university-funded research, while treating symptoms for profit is the domain of corporate R&D.
Most drug discovery and development is done in the private sector. Think 60%+.
Of the stuff that is gov't funded, it's basic research, not the development that actually gets a drug to market and that's what costs so much money.
EDIT: Wanted to provide some numbers.
252 drug were approved by the FDA from 1998 to 2007[1]. Where did they come from?
58% from pharmaceutical companies
18% from biotech companies..
16% from universities, transferred to biotech.
8% from universities, transferred to pharma.
During this same period, 118 drugs were considered to have scientific novelty. Where did those come from?
44% were from pharmaceutical companies.
25% were from biotech companies, and
31% were from universities (transferred to either biotech or pharma).
You need to dig a little deeper than that. Of the 252 drugs, how many where minor modifications of existing drugs. And how many where targeted based on government funded research.
Click on the link I provided and read the details. I even quoted the relevant numbers.
Of the 252 drugs that were approved, 118 were regarded as "scientifically novel" (not me-too drugs or minor modifications of existing drugs). They also did another cut where they looked at FDA "priority approvals", which basically means the FDA was willing to fast track the approval because the disease the drug was treating had no effective treatment.
As to your second question, over 60% of the scientifically novel therapies were discovered by pharma/biotech. They would have received no government funding for their research. The remaining 40% or so were discovered in university labs, of which a certain percentage were discovered via gov't funding (don't forget that industry-academic partnerships also make up a certain percentage of university funding).
A minor nitpic Drug R&D has a defacto subsidy in the tax code. see: "For purposes of section 38, the research credit determined under this section for the taxable year shall be an amount equal to the sum of" () As well as several other direct and indirect subsidies.
An oversimplified summary is that the majority of the pipeline for new drugs is in small companies. When one of these small companies develops a new compound that has an enormous potential market, it is purchased by one of the large companies that has better expertise in distribution and marketing, and can scale up production much more efficiently.
A tremendous amount of funding is put into the development of new drugs, yet it should be no surprise that much of this research produces nothing useful. Innovation anywhere results in hits and misses, yet investors are willing to assume the risk when they believe a certain percentage of success will sufficiently balance out the failures.
In effect, strong property rights allows a modularization of the different roles of drug development.
If people truly believe that there is a problem with the pharmaceutical industry, they should identify what the problem is first, and then unemotionally analyze how they could address those problems.
I tend to believe that there is a general consensus that the growing portion of GDP being devoted to pharmaceuticals is not sustainable, and quite likely already more than it would be in a better optimized economy.
What constrains the demand for pharmaceuticals? If something will save save your life, you may be willing to spend a million dollars on it. However, if you only have a 1/1000 chance of needing something, you may not be willing to spend $1000 on it when you're not under the gun. In order to balance all the many eventualities for potentially needed medical treatment either your government or insurance provider collects and organizes resources for people who need treatment today with the promise that all of the contributors will also receive treatment when needed. How much treatment?
How much treatment is generally determined by whatever is medically necessary. There may be some wiggle room on the definition of medically necessary, but it doesn't matter because this isn't what determines how much medical treatment you receive or might receive. What really determines how much medical treatment you can receive is how much medical treatment is available.
It probably sounds extremely cynical, but the idea of destroying pharmaceutical patents would likely accomplish what it sets out to do. It would dramatically lower expenditures on medicine. However, it wouldn't be because pharmaceutical companies would lose their profits,\1 it is because it would break the advance and development of new compounds that is probably occurring at too fast a rate.
Fueling the excessive rate of development, if it is excessive, is the knowledge of investors that the healthcare market is in a perpetual failure state. There is no constraint on demand. Unlike just about any other product, as long as you make a better product there will always be demand. Imagine doubling the price of a house in order to make it invulnerable to tornadoes. Maybe some people would do it, but they don't get the chance to purchase the modification while a tornado is bearing down on them, and they can't purchase different tiers of tornado insurance then be understandably furious when they find out it doesn't cover emergency home modifications. With other products, even potentially life-saving home improvements, people don't buy them just because they are better, they buy them if they are better and the improvement outweighs the additional cost.
If I were to rationally rank my preferences, I would rank an education that affects the quality of my adult life higher than I would rank a life-saving procedure that extended my life ten years. Some people would be able to choose both, etc, but no one is making those kinds of decisions about how much coverage they get, they simply choose 'whatever is medically necessary', by which they really mean, 'every sort of treatment that has completed development by the time I can use it'.
\1 One can invest in pharmaceutical companies if they think they have magical returns on investment, because little of the revenue is ultimately directed toward expensive research or acquisitions justifying investments in research done elsewhere. Judging by the quality of comments in the thread about efficient markets this morning, they may very well happen!
How do you let drug companies recoup costs quicker without reducing the oversight that goes into drug approval? I am also a little curious about the free market implications. Instead of the invisible hand guiding drug development we will be relying on government autocrats? It seems that the incentives for governments to lengthen patent protection would just shift their nefarious attention to the prize system and drug approval process.