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Profiting from the work of others: Why weakening prescription drug patent protection is bad public policy

By Eric Peters
web posted October 14, 2002

A cornerstone of the free market -- and the individual initiative that keeps it running -- is the idea that any new invention or product will be protected by law against copycats who didn't do the work or invent anything, but who nonetheless hope to cash in on someone else's "sweat equity." This is the fundamental issue in the current debate over the so-called "Greater Access to Affordable Pharmaceuticals Act" -- peddled more informally under the rubric of Schumer-McCain, in reference to its primary congressional sponsors.

If it passes the House (the Senate version of the legislation, S.812, has already been approved), Schumer-McCain would further water down already abbreviated patent protections on newly developed prescription drugs -- allowing generic drug makers to elbow in just a few short years after a new drug finally comes on the market and lawfully sell drugs they invested little, if any, of their own time and money developing and testing.

This is more than unfair to the pharmaceutical companies and the thousands of individuals who work for them -- it is terribly shortsighted public policy.

Schumer-McCain is being sold as a means of lowering the cost of prescription drugs -- an emotionally compelling argument, especially for the elderly. And the legislation may, indeed, lower the cost of some prescription drugs -- in the short term -- for those already invented and on the market. But what about future drugs not yet invented? Will pharmaceutical companies invest the money and the time -- on average $800 million and 14 years -- developing life-saving new drugs if they know beforehand that they may not be able to recoup their costs, and that generic-brand competitors, who have not had to tap their capital and human resources to develop those new drugs, may nonetheless simply grab the recipe (so to speak) and then produce and sell these new medicines for a tidy profit?

It's not likely.

As Heritage Foundation Health Care Policy Analyst Nina Owcharenko argues in a recent analysis of the matter, "The potential loss of revenue and smaller profit margins would lead to less reinvestment in the intensive research and development that creates new and improved drug treatments… current drug supplies would tighten, and future breakthrough medicines and treatments might either slow or, in some case, never materialize." [1]

How would that benefit seniors -- or anyone else, for that matter? Pharmaceutical companies are like any other business; they must make a profit in order to remain in business. And it's hard to remain in business when your competitive edge -- new products -- may be effectively taken from you by other businesses with political pull.

Dr. Merrill Matthews of the Institute for Policy Innovation notes that the initial research into a new medicine, testing protocols, and the subsequent, often arduous approval process by the FDA takes on average 8 to twelve years -- a period that amounts to more than half the effective "lifetime" of existing patent protections, which last for just 20 years. At present, pharmaceutical companies have on average just 8 to 10 years to recoup their often staggering investment before other companies may lawfully offer generic versions of the same drug. [2] The Schumer-McCain legislation proposes, in effect, to further close the already minimal "window" during which a new drug's inventor can recover the cost of developing that drug.

Certainly, cutting edge prescription drugs are often expensive -- for good reason. Nevertheless, if pharmaceutical companies that develop new drugs are not allowed to make money from the sale of the drugs they invent, where do "reform" advocates imagine the funds will be obtained to finance new research into tomorrow's drugs? The scientists who spend years working on these things expect to be paid; facilities and equipment cost money. Making sure a new drug is both safe and effective does not come cheap. But which is the better option: encouraging innovation into new life-saving treatments by protecting the hard work and investment of those who make them possible, or enacting laws that would make any sensible person or business think twice about investing years and millions of dollars into a product that might never reach the market in the first place, and which, if it does, could then be effectively expropriated by a competitor?

The desire of "reform" advocates to "help" the elderly is understandable, even laudatory, but "concern" does not alter economic reality. Waving the swagger stick of government around will not suspend marketplace realities; it will only make matters worse. There are ways of helping older folks and others who need help with the high cost of prescription drugs without ham-fisted interference by government in the marketplace.

The idea that a public good is being advanced in the case of Schumer-McCain doesn't hold up when one reflects upon the impact that weakening patent protections and intellectual property rights would have on the development of future drugs -- and that the generic competitors demanding this "reform" are, after all, not charitable enterprises. What makes these for-profit businesses that are clamoring for a government-mandated competitive advantage any less rapacious than the supposedly "greedy" pharmaceutical companies that developed the new medicines in the first place?

Wheeling out "the elderly" and "those on fixed incomes" in a demagogic attempt to tug on people's emotions (but not appeal to their reason) doesn't alter the nature of the shabby transaction that is Schumer-McCain -- or the stifling effect it will have down the road if passed into law.

Unless we have decided to throw away the idea that innovation should be rewarded, we must resist the emotional siren song of weakened drug patents. This ill-conceived notion won't help today's elderly for very long, if at all -- and it may cost the elderly and others who depend on lifesaving new breakthroughs a lot more than money in the years to come.

Footnotes:

1. Nina Owcharenko, "Why Senate Drug Policies Will Backfire," Heritage Foundation WebMemo #128, The Heritage Foundation, July 18, 2002, downloaded from http://www.heritage.org/Research/HealthCare/WM128.cfm on October 7, 2002.

2. Dr. Merrill Matthews, Jr., "Patent Protection for Me, But Not for You," IPI Ideas, Institute for Policy Innovation, June 14, 2002.

Eric Peters is a senior fellow of The National Center for Public Policy Research, a Washington, D.C. think tank. Comments may be sent to epeters@nationalcenter.org.

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