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Jewish World Review May 24, 2002 / 13 Sivan, 5762

Doug Bandow

Doug Bandow
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Consumer Reports

Threatening pharmaceutical innovation | America's economic prosperity is built upon productivity and innovation, yet the entrepreneurial process is under constant attack. Sometimes the assault is direct, as in the case of Microsoft. More often it is indirect, as in the case of the pharmaceutical industry.

Federal and state officials are seeking to control prices, limit sales, destroy industry marketing networks and undercut patent rights. These efforts could hobble an industry that today dominates the globe while providing manifold health benefits through new drug discoveries.

Pharmaceutical innovation depends on the patents, which allow companies to profit from their research. Otherwise the industry would not spend more than $30 billion a year to develop new products.

Indeed, industry R&D averages 20 percent of sales, five times the American average. The industry figures that it spends an average of nearly $900 million per drug.

Even such a significant investment doesn't guarantee results. Of every 5,000 to 10,000 substances reviewed, only one ultimately makes it onto the market. Just a third of them actually make money. These few must pay for everything -- research, administration and costly "dry holes."

No wonder then, that doctors support pharmaceutical patents. In a recent survey, 98 percent of physicians said that continued drug development is important or somewhat important for patient care.

Unfortunately, however, drugs do not just appear. Three-fourths of doctors opined that patent rights were very important as an incentive for drug production; 23 percent said that they were somewhat important.

Nevertheless, patents do not run forever, creating room for a vibrant generic industry. In 1984, Congress approved legislation relieving the regulatory burden on generics, which have gone from one-fifth to half of the market. This has tempered drug prices and restrained pharmaceutical costs. Yet patent battles have become common. The FDA's unnecessarily lengthy approval process undercuts the value of patents, causing Congress to allow for their extension if, for instance, a manufacturer adds a new chemical to the drug or develops a new use for the drug.

At the same time, a variety of interests often strongly resist patent extensions. The Federal Trade Commission just settled a case with Biovail Corp. involving its attempt to maintain the patent on the blood pressure medicine Tiazac. Controversy also has dogged AstraZeneca's effort to extend the patent life for Prilosec, which combats heartburn, Myers Squibb's Glucopohage, which treats diabetes, and Schering-Plough's Claritin, which mitigates allergies.

Whatever the specifics of individual cases, there is nothing wrong in principle with research firms attempting to extend their patents within the law. After all, the companies were created to make money; if they didn't, they wouldn't invest in R&D. The very purpose of patents is to provide a temporary monopoly to allow companies to enjoy the fruit of their labor.

Some legislators would change the law -- Sens. Charles Schumer (D-N.Y.) and John McCain (R-Ariz.) want to close the "loopholes" that allow patent extensions. Pharmacist Lee Vermeulen of the University of Wisconsin suggests that the Food and Drug Administration block medicines which don't offer a significant advance over existing products: "We can't afford this kind of nonsense from the industry."

Health insurers are working to move patented products into the over-the-counter market. Some industry critics hope to discourage use of newer, patented drugs developed to replace older, off-patent medicines by banning consumer advertising, for instance. Medical reporter M. Alexander Otto, writing in the Washington Post, even complained that Schering-Plough had priced its antihistamine Clarinex lower than the drug it superseded, Claritin.

Any attempt to limit patent protection creates risks, however. Pharmaceuticals are well worth the cost: not only do they extend and improve the quality of life, but they reduce other medical expenditures, particularly for hospitalization and surgery.

No surprise, then, more than two-thirds of doctors worry that weakening patent protection will reduce research on rarer conditions and actually raise consumer prices, by forcing recovery of costs in a shorter period of time. A majority also fear that the result will be fewer generics, since the latter ultimately derive from brand drug development.

Advertising informs consumers, alerting some people to conditions and cures of which they were unaware; even doctors have trouble keeping up with the flood of medical advances. Moreover, physicians remain the gatekeeper, reviewing the appropriateness of a particular treatment.

Even "me-too" drugs often offer important advantages for some people. Doctors prescribing and patients taking newer products, not special interests lobbying politicians, should determine the relative advantages of, say, Schering-Plough's Clarinex over Claritin, or AstraZeneca's Nexium over Prilosec. They should decide whether any improvements are worth the added costs.

Generics have become a critical component of the drug market. But without patents, there would be no brand name medicines to copy. In attempting to lower health-care costs, we must not kill the pharmaceutical Golden Goose.

JWR contributor Doug Bandow is a senior fellow at the Cato Institute. Comment by clicking here.


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© 2002, Copley News Service