Treating patent addiction

Is the pharmaceutical patent system working for us, or against us?

An interesting web-book by Dean Baker makes the case that our government is socialist- but for the benefit of the rich rather than the poor. The general case has quite a bit going for it, with several trenchant points, though others are pretty weak, such as Baker's discussion of the role of the Federal Reserve.

Baker hints that there are better ways of fighting inflation than raising interest rates. And he maintains that raised rates have their main effect in cutting employment, putting the poor out of work, insinuating that this is some nafarious soak-the-poor policy. I'm not so sure. Raised interest rates raise the price of money and restrict new loans, which are the primary motor of money creation (and of economic activity, in our fallen age) and seem to efficiently combat the core issues of inflation. That this disproportionately hurts those on the bottom rung of the ladder is an automatic consequence of the overall capitalist structure of the economy, not any special property of Fed action. Could the Fed collect dollar bills and burn them? I'm not so sure, for who would give them up without compensation? Baker doesn't actually lay out his alternative plan, (other than direct wage and price controls, which are a singularly wretched tool), probably with good reason.

At any rate, Baker does present one fascinating case study- of the drug industry- which I think is on much firmer ground. To summarize, the current major pharmaceutical industry makes its money from the 20 year patent. Once a compound is discovered and filed for a patent, the clock starts ticking on this government-granted license to sell the resulting drug for whatever the company wishes to charge. (This is typically a function purely of maximizing the product of price times sales into what they imagine the market will bear, rather than recouping actual costs of research and production, or competing against other producers). This system gives drug companies huge potential incentives to create important drugs that they hope become a standard of care, with high resulting market demand.

Drug companies say that they spend an average of $800 million to bring a new drug to market, so their standard of sovency has become the "blockbuster" drug with annual revenues over $1 billion. This system has served the US well in many respects, with leading-edge pharmaceutical research, a continuous flow of new drugs in the pipeline, and a vibrant generic industry to offer rapid price reductions once drugs go off patent.

On the other hand, the system is also riddled with inefficiencies and incentives contrary to the common good. The $800 million figure is, I believe, quite inflated, since much of the work of the drug industry is devoted to making drugs with modest beneficial effects- drugs that may slightly ameliorate chronic conditions like depression, diabetes, or Alzheimer's disease. These drugs are can be extremely difficult to test because their small effect size requires large populations for trials, followed by ornate, if not ambiguous, statistics. Consider penicillin- its ability to cure infections was immediately apparent, and did not require large trials with thousands of patients.

In comparison, consider a drug like donepezil for Alzheimer's disease. It improves cognition slightly for a few months, costs ~$220 per month (still under patent in the US). Numerous studies have been done, covering thousands of patients. (The Cochrane meta-analysis says "23 trials are included, involving 5272 participants"). They typically show just-detectable benefits, which, calculated in cost-of-care terms offers no discernable benefit (cost of drug vs cost of increased care of untreated Alzheimer's sufferers).

Not only that, but each other drug company that wants a part of the action makes a copy-cat drug with slightly different chemistry and similarly marginal benefits, requiring similarly exhaustive and expensive trials to gain FDA approval. And then the drug companies complain that that the FDA is too restrictive! But the fault, dear Brutus, lies not in our stars, or in our government bureaucracies, but in the quality of the drugs being created.

The drug industry has a big problem right now- its pipelines are drying up, despite the huge advances in molecular biology and genomics over the last few decades. As the technology of drug discovery is taking quantum leaps in efficiency and comprehensiveness, there seem to be fewer drugs coming out the other end. This might be due to a true shortage of targets- we only have 23,000 genes, after all, and many of their products have multiple functions, making drug-based inhibition a perilous business, frought with side-effects. There may just be a limited number of ways to use small molecules to interfere with human biology.

New drugs approved (blue- formulations and combinations,

red- underlying novel molecular entities)

On the other hand, the problem might also be institutional in the pharamaceutical industry. To make money, drug companies have to sell lots of drugs. That means large markets and common diseases, hopefully chronic. But not all diseases are chronic or common, or afflict people with ability to pay. Diseases of the third world are notoriously under-researched and so-called "orphan diseases" and infectious (i.e. acute) diseases are likewise underfunded. Rather than do innovative research in to basic disease mechanisms, drug companies spend much of their money making copy-cat drugs in popular categories (think cholesterol reduction, acid reflux, depression, erectile dysfunction). And, of course, drug companies also spend roughly twice as much money marketing drugs than in researching them.

I think both problems are serious and getting worse. Viagra offers an interesting example. This drug was discovered serendipitously when Pfizer researchers looking for drugs for angina and hypertension, (classic categories for profitable drug hunting), all based on publically funded research on NO2 signalling, discovered a completely unexpected effect of one candidate. Now several companies have created similar drugs and great happiness has been rendered to millions. But note that this drug was found by accident, and the condition was not even on the company's radar screen. A double-accident plus a lot of publically funded research brought us this new drug category, which has made drug companies three billion dollars annually for a decade.

Does society really have to pay these exorbitant prices for such modest effort and accidental benefits? Baker claims that the excess cost of the drug patenting system over making all drugs generic from the start is roughly $400 billion per year. Is that a fair price for the research and market motivation that the current system gives us? Remember that the entire NIH, upon whose basic research virtually all pharmaceutical innovations depend in whole or in part, only costs $30 billion annually, less than one-tenth the industry figure.

Baker makes a proposal that with a doubling of the NIH buget to replace the research and development functions of the pharmaceutical industry, including modest prize incentives for development successes, we could gain all the benefits of the current pharmaceutical industry and more (i.e. targeting diseases more equitably, and focusing on significant rather than on marginal effectiveness), for a small fraction of the societal cost. I can't but agree that this is a very reasonable idea.

Indeed, the NIH is already dipping its toes into this pool of drug development, setting up programs to develop drugs for neglected diseases, one sector where our current system is AWOL. If corporate neglect where purely a function of the prevalence and harm of each respective malady, this market structure might be defensible. But often it is a function of the prospective length of treatment, (hopefully forever), the depth of the prospective patient's pockets, and prospective prevalence as juiced by energetic "informational" campaigns for what may have been unknown or minor maladies.

The clamor for buying drugs in Canada has been a sorry commentary on the dysfunction of our patent and drug system. The domestic drug industry uses its corrupt political influence to induce the government to pay whatever the patent holders ask, even for such enormous government programs as Medicare. Canada, not beholden to these companies, and given to more rational social policy generally, does negotiate prices down, attracting the interest of US consumers saddled with uncontrolled costs. Then US politicians, frustrated with their own corruption, get on the bandwagon, either cynically to gain a few votes, or possibly as a way to indirectly pressure the domestic drug industry to moderate prices. It's an insane way to get to where we should be going, which is to rethink the whole rationale of the patented drug sector.

This sector is just one example of the inefficiencies in our sclerotic political-economic system that is saddled with enormous legacies of infrastructure and vested interests as we enter this new century and try to battle our way to a better future. Current Senate rules, for instance, allow Senators representing barely 12% of the population to block any action. Deliberation is one thing, gridlock is another.

1. Kaufman M. Decline in new drugs raise concerns: FDA approvals are lowest in a decade. Wash Post. 2002; Nov 18:A1
2. Pollack A. Despite billions for discoveries, pipeline of drugs is far from full. N Y Times. 2002; Apr 19:C1.
3. Dyer G. Anaemic patient needs to take its medicine: investors have fallen out of love with an industry with fewer products in the pipeline. Financ Times. 2003; Apr 16:2.

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