On January 23, the Wall Street Journal hosted an interesting debate between Josh Bloom, Phd, of the American Council on Science and Health, and Dr. Else Torreele of the Open Society Foundation. (The link is here, and was free when I last checked. If it disappears behind a wall, the citation is: Josh Bloom & Els Torreele, Should patents on innovation be extended to encourage innovation? Wall Street Journal, 1/23/2012.)
Dr. Bloom makes a classical case for patent protection as an effective legal mechanism to incentivize pharmaceutical R&D. And he goes a step further, proposing that more innovative medicines be awarded longer patent protection and less innovative ones shorter patent protection. (Its an idea with which Ive noodled, but never figured out how to define the dividing line.)
Dr. Torreele asserts that patents do not prompt innovation, and that the profit motive leads to misdirection of research in favor of profitable markets, thereby neglecting diseases of the developing world.
I vote for Dr. Blooms analysis.
First, Dr. Torreele errs in describing patents as monopolies. Monopoly describes a market, not a product. When the U.S. Patent & Trademark Office granted Merck a patent for Mevacor (lovastatin), the grant did not give Merck a monopoly on lipid-lowering drugs. Instead, a host of lipid-lowering drugs followed and it became a very competitive market. Pfizers Lipitor (atorvastatin) recently went off-patent, so we now enjoy a diverse portfolio of low-cost lipid-lowering drugs from which physicians and patients can choose.
Furthermore, Dr. Torreele contradicts herself when she makes the accusation that too many drugs are not really innovative. Clearly, if they are not innovative, they cannot wield monopoly power. If it takes a decade and a half to develop a drug through approval and clinical use, that means that every competitor has endured a long valley of death (of capital investment) before a new drug is approved. A couple of decades ago, huge investments were made in lipid-lowering drugs.
Dr. Torreele seems to suggest that once Merck got Mevacor approved, the government should have ordered every other research-based pharmaceutical company to cease and desist from developing other lipid-lowering drugs. Billions of dollars of R&D cancelled with the stroke of a bureaucrats pen!
Today, one area of great opportunity appears to be Alzheimers research. Many pharmaceutical companies, large and small, are investing heavily in discovering new medicines that will benefit Alzheimers patients. Under Dr. Torreeles proposed policy, once the first innovative drug succeeds in navigating the research challenges and regulatory bureaucracy, all the other drugs in development would be quashed just because they will be similar to the path-breaker. Such a policy, of course, would result in true monopoly for the first drug out the gate.
With respect to the so-called neglected diseases of the developing world, the best answer is that these nations should adopt economic policies that will allow them to grow like Germany or Japan did after their total defeat and utter destruction in 1945. These policies have allowed people in countries such as Taiwan and South Korea to climb out of poverty, diesase, and early death. The umbrella term for these policies is economic freedom, and they have been well analyzed and described by scholars associated with The Fraser Institute.
Until the governments of less-developed countries adopt such policies, there is really no good solution to their peoples suffering. Blaming investor-owned pharmaceutical firms for the problem is no more likely to result in solutions than beating up General Mills or Unilever for the fact that North Koreans are starving.
Nevertheless, there are good signs of progress in innovative collaborations between for-profit pharmaceutical companies and charitable interests (the elephant in the room being the Bill & Melinda Gates Foundation). Indeed, Ive long had it on my agenda to research the extent of these collaborations and analyze best practices something I think would benefit both philanthropic and for-profit investors.