Is it unethical for a drug company to make over $1B in profit (sale price less manufacturing cost) for an aspirin? For an AIDS vaccine? For a cure to cancer?
Consider that the average costs incurred in bringing a drug to market are $800M. Consider how much money is sunk into research for drugs that go nowhere. Consider the damages they may face if a drug has harmful effects that were not picked up in the trials (c.f. Vioxx). And consider that for all of this risk and sunk costs, these companies exist to make a profit. And even when hey get a good and successful drug, there is a limited window afforded by patents until anybody can make generic versions of your drug, reducing your profit to almost nothing.
Consider the effect on R&D if there is no profit motive (Hint: It's not good). If we insist that drug companies come up with life-saving drugs, and then take their patents in the name of the public good, who will exist to make the life-saving drugs for the next generation?
Wednesday, August 23, 2006
Subscribe to:
Post Comments (Atom)
4 comments:
Obviously there needs to be an incentive for drug companies to do their work. And I don't think the importance of that work can be understated.
An interesting question is whether the drug is over-incentived. A patent is a state-sponsored monopoly, and, basically monopolies are bad. But in this case, a temporary monopoly is the incentive for the drug company to spend their hundreds of millions. So the effeciency question seems to be is 'do current patents run too long?' Obviously, those who hold intellectual property rights fight as hard as they possibly can to extend those rights as long as possible, and if it were up to them alone they'd create a permanent monopoly for their product.
I think drug companies should be paid for whatever their drugs are worth. And I think rich countries should buy the drugs and give them to poor countries.
A monopoly is bad sometimes. But in unusual or inefficient markets, we use them all the time (whether good or bad, people can and do debate). Most arms of government are institutional monopolies: US Armed Forces, Police, Fire, DOT, zoning boards, public utilities (though some are now regulated), courts, and more are all monopolies created, maintained, and backed up b the force of law.
One reason drug costs are high is that FDA trials are very expensive. Another reason is that research involves trial and error, with error becoming much more expensive further into the process.
Customers lack perfect information, and really know almost nothing about the drugs they consume, except that the doctor said to take them. Information on possible substitutes (get 90% of the result for 10% of the price).
The really big question is "what are the drugs worth?" Is worth defined by cost, or value? I often hear political argument from the cost side - "the pill costs $3.50 to make and it is sold for $25 - that's obviously immoral."
I agree with the later point - that rich countries should subsidise/buy drugs for poor countries. If the powers that be could guarantee $X to the company that come sup with a cure for AIDS, I think much more work could be done on it (something the Bill and Melinda Gates foundation is now doing).
Yet another problem is that cures don't sell as much as treatments that require regular doses. In a world where a Cure For All Diseases With One Pill would be taken at cost from the manufacturer in the name of human rights, no such pill will ever come about.
Do current patents run too long? Or do they not run long enough? How might we answer this? One way would be to ask if there are too many or too few drugs coming to market. If too many, then perhaps they are too long - supply exceeds demand, so supply could be reduced by removing incentives. If too few, perhaps patents need to be longer, in order to increase the ROI for investment in R&D for new drugs.
Whether intellectual property rights run too long or not long enough is a really interesting and important policy question. You pose an interesting test to answer the question.
It's also such a tough question because the results can be monumentous: people die because of inability to afford drugs vs. the wonder drug may fail to be ever be produced.
Another way I've seen this addressed is in the copyright context. Europe experimented witha much stronger copyright that was provided in the US for databases, on the theory that this would incentivize their creation. However, the result ended up being that after a set period of time, they had proportionately fewer data bases. The idea behind this is that if you don't let enough information into the public domain, you choke off a lot of the resources for future innovation.
This professor writes extensively on the subject you're discussing here, and is very fascinating, if radical:
http://www.law.duke.edu/boylesite/Boylebio.htm
You might want to check him out for an intelligent argument opposite the one you're making. Read 'A Natural Experiment' for a discussion of the database issue I mentioned above.
That doesn't sound so radical to me. The main thrust seems to be "have a good reason to do it before giving monopoly power." Such power is inherently anti-competitive, and thus to be avoided unless there's good reason to do so.
Importand differences between drugs and databases:
1) Entry cost. Drugs have almost $1B in costs to come to market. Databases don't (as evidenced by the fact that a website with several links, presumably done in someone's spare time, is threatened with litigation).
2) Bad databases could have some negative effects, but will be largely mild - I consider looking for information about X and being redirected to a porn site to be a mild negative. Bad drugs can kill. This is an argument for a strong vetting process, with temporary IP rights as a reward.
3) The US does have certain protections associated with databases. See Google: a proprietary search algorithm is used to compile a databse of information. But it is the means that gets IP rights, not the result (the result being publicly available information to start). A drug is a new creation, in that the only common components are atoms. It's not simply a gathering of existing data.
But I like his analysis in general. Granting IP is anti-competitive. I agree wholeheartedly. We do need to examine whether IP in the pharma world produces more, better drugs, or less. But especially in light of the entry costs (key, key thought), I don't believe the DB result could be applied to drug companies.
Post a Comment