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> The poster child for strong patent protection is usually the pharmaceutical industry, as drugs are easily copied and can cost upwards of a billion dollars to

> The poster child for strong patent protection is usually the pharmaceutical industry, as drugs are easily copied and can cost upwards of a billion dollars to develop. Here, Boldrin and Levine admit that the government would likely need to step in. But rather than giving companies a legal monopoly over their formulas, the authors suggest we should modify the drug approval process to let makers start recouping their costs faster. They would also set up a prize system to reward companies that invent the new medicines we need. This strikes me as a really fantastic idea. Actually, I wonder if insurance companies shouldn't offer these prizes regardless of the patent situation. They know intimately well which disorders cost them the most money. They could form a consortium and offer a prize for x amount of money for reducing the cost of treating some disorder by y dollars per patient, where x is guaranteed to be less than the amount of money they will save.

kybernetikos 14y ago
Might work nicely for diseases that take a long time to kill you, but insurance companies have no incentive to find a cure to something that kills you quickly and cheaply.
- refurb 14y ago
  While it's true that insurance companies use cost as a major driver for decisions, however it's not the only driver. In the US, insurance companies compete with eachother to provide coverage for employers. Many (not all) companies want insurance that is beneficial for their employers. If you drop coverage for something an employer wants, you may lose a major customer.
refurb 14y ago
The "award system" for drug development is full of problems. Who makes the call as to how much to award? Who decides who the award goes to (very few drugs are develop by one group alone)? Who decides when a drug is actually better than existing treatments? Insurance companies already reward innovation. When a new drug hits the market, insurance companies collect and review all the data available and decide on how much access they'll provide their customers with. This analysis includes looking at a drug's impact on total cost of care.
- wtallis 14y ago
  Right now, the insurance companies' decisions are skewed by the fact that the new drugs have to be compared against the price of generic drugs. That means that unless the new treatment is orders of magnitude better, it won't be much of a cost savings until long after the inventors should have been rewarded for their innovation.
dfc 14y ago
I was struck by how little effort the author put into describing the proposed solution for "the poster child for patents." Is the Atlantic going downhill? How do you let drug companies recoup costs quicker without reducing the oversight that goes into drug approval? I am also a little curious about the free market implications. Instead of the invisible hand guiding drug development we will be relying on government autocrats? It seems that the incentives for governments to lengthen patent protection would just shift their nefarious attention to the prize system and drug approval process.
- nitrogen 14y ago
  I don't see (har har) an invisible hand guiding commercial pharmaceutical development. I see an oligopoly of pharmaceutical corporations acting out of unenlightened self interest. From my layman's perspective, it seems that curing diseases is largely done by government- and university-funded research, while treating symptoms for profit is the domain of corporate R&D.
  - rz2k 14y ago
    It could be, because that isn't how it works :) An oversimplified summary is that the majority of the pipeline for new drugs is in small companies. When one of these small companies develops a new compound that has an enormous potential market, it is purchased by one of the large companies that has better expertise in distribution and marketing, and can scale up production much more efficiently. A tremendous amount of funding is put into the development of new drugs, yet it should be no surprise that much of this research produces nothing useful. Innovation anywhere results in hits and misses, yet investors are willing to assume the risk when they believe a certain percentage of success will sufficiently balance out the failures. In effect, strong property rights allows a modularization of the different roles of drug development. If people truly believe that there is a problem with the pharmaceutical industry, they should identify what the problem is first, and then unemotionally analyze how they could address those problems. I tend to believe that there is a general consensus that the growing portion of GDP being devoted to pharmaceuticals is not sustainable, and quite likely already more than it would be in a better optimized economy. What constrains the demand for pharmaceuticals? If something will save save your life, you may be willing to spend a million dollars on it. However, if you only have a 1/1000 chance of needing something, you may not be willing to spend $1000 on it when you're not under the gun. In order to balance all the many eventualities for potentially needed medical treatment either your government or insurance provider collects and organizes resources for people who need treatment today with the promise that all of the contributors will also receive treatment when needed. How much treatment? How much treatment is generally determined by whatever is medically necessary. There may be some wiggle room on the definition of medically necessary, but it doesn't matter because this isn't what determines how much medical treatment you receive or might receive. What really determines how much medical treatment you can receive is how much medical treatment is available. It probably sounds extremely cynical, but the idea of destroying pharmaceutical patents would likely accomplish what it sets out to do. It would dramatically lower expenditures on medicine. However, it wouldn't be because pharmaceutical companies would lose their profits,\1 it is because it would break the advance and development of new compounds that is probably occurring at too fast a rate. Fueling the excessive rate of development, if it is excessive, is the knowledge of investors that the healthcare market is in a perpetual failure state. There is no constraint on demand. Unlike just about any other product, as long as you make a better product there will always be demand. Imagine doubling the price of a house in order to make it invulnerable to tornadoes. Maybe some people would do it, but they don't get the chance to purchase the modification while a tornado is bearing down on them, and they can't purchase different tiers of tornado insurance then be understandably furious when they find out it doesn't cover emergency home modifications. With other products, even potentially life-saving home improvements, people don't buy them just because they are better, they buy them if they are better and the improvement outweighs the additional cost. If I were to rationally rank my preferences, I would rank an education that affects the quality of my adult life higher than I would rank a life-saving procedure that extended my life ten years. Some people would be able to choose both, etc, but no one is making those kinds of decisions about how much coverage they get, they simply choose 'whatever is medically necessary', by which they really mean, 'every sort of treatment that has completed development by the time I can use it'. \1 One can invest in pharmaceutical companies if they think they have magical returns on investment, because little of the revenue is ultimately directed toward expensive research or acquisitions justifying investments in research done elsewhere. Judging by the quality of comments in the thread about efficient markets this morning, they may very well happen!
alexqgb 14y ago
I'm always astonished by the idea that, were it not for patents and the profits they promise, "no motivation to develop drugs would exist". At one point I worked with a group that raised money to finance medical research for patients with lupus. These were folks who were seen as too few, and suffering from something too complex, to be profitable. For the most part they were relying on some pretty toxic treatments that hadn't progressed since the 1950's - the pharmaceutical equivalent of pre-anastasia surgery. Believe me, the people suffering from this were HIGHLY motivated to find a cure, and given an organization capable of focusing that interest, they've raised millions upon millions of dollars* to do exactly that. This was an early form of crowd-funding and it just obliterates the argument that "without patents, there's no motivation to cure stuff." I'm sorry, but that is absolutely, categorically, and demonstrably false. If people are sick and dying, they have bottomless motivation. Indeed, the extraordinarily high prices people people put on their own lives ("my kingdom for a horse!") represents a profound reservoir of motivation. The patent and approval system diffuses this deep and natural drive, replacing it with the more limited motivation offered by monopolistic rent-seeking (which aims not to cure disease, but to make it 'manageable'). The thing about an awful disease is that it develops a sense of community. I cannot imagine, for instance, someone who has raised a lot of money to find a cure saying, "yeah, but fuck the next generation that comes along and gets hit with the same affliction - those guys are on their own. WE paid for this, and the cure is OURS. They can reinvent their own damn wheel if they want to live." Just...no, that's not how people think. What they really think is that in devoting themselves to finding a cure, they are finding a valuable role for themselves in a society that tends to see them as victims. It's how they recover a sense of self-worth and dignity. They are PROUD to pay it forward. Indeed, one of the top sentiments I heard from people I interviewed was "I want to find a cure so that no one else anywhere in the world ever has to suffer what I've gone through because NOBODY deserves this." THAT's what real decency sounds like. And it's what our patent system frustrates in a very profound way. I know the pharmaceutical industry is always brought up as the tough case against patent reform - the exception that "must" be made in any discussions tending towards to liberalization. I'd argue the opposite. I'd say that this is one of the easiest cases to make. Maybe not a decade ago, but as the organizing power of the internet comes into focus, I can see a world where direct and massively distributed research finance is the norm, with the results made openly available to the entire world. People who are sick used to feel terribly isolated. Thanks to the internet, that's changing. They're finding they discover others going through the same thing, and that they can use the same channels to pool their resources. Were they given tax credits, their resources would increase substantially. And they don't want to "manage" their diseases. They want to cure them. Researchers working on behalf of people trying to solve their own problem pursue tacks different from those who are working from companies looking to exploit that problem most profitably. And when people finding their own cures succede, their natural impulse is to share their triumph with all mankind, the world over, not start trade wars over IP that use the pain and death of millions already in - or facing - poverty as leverage. *People who say research costs billions, not millions have been suckered by the most pernicious line of bullshit imaginable. The "billions" figure does not represent actual R&D costs, which, in a shocking number of cases, represent single-digit percentages of pharmaceutical company budgets. Instead, they represent the fully loaded costs of maintain legal departments to protect patents and marketing departments to push drugs in cases where they have marginal or negative value. Inflating the reported development costs into the billions is simply propaganda designed to make any system that doesn't involve patents seem like a financial impossibility.
cturner 14y ago
I'm a big fan of Boldrin/Levine but suspect they're wrong about this. The reason medical investigation is so expensive is because there's so much red tape around it in the form of approvals, and the convoluted systems health coverage in the developed world. It's a classic insiders' club. People got institutionalised into the culture, and then can swap between government and industry. There's no strong incentive for anyone in the game to keep costs down. Much more important for the insiders that the barriers remain high.
- PatentTroll 14y ago
  But there is a reasonable expectation that a pill your doctor prescribes will not kill you (with few notable exceptions). This is a good thing. Who is better at safety, the "free market" or the government?
  - kansface 14y ago
    Why do you quote free market and not the government. Neither one has any interest in actually promoting safety- both are only interested in security theater or protecting their bottom line. See the profitable war on drugs or the TSA. I really don't know the answer to the question, but the clear victor certainly isn't the government.
- luriel 14y ago
  It is a textbook case of regulatory capture. Still, abolishing patents would go a long way to allowing real competition and progress in healthcare.

kybernetikos 14y ago

Might work nicely for diseases that take a long time to kill you, but insurance companies have no incentive to find a cure to something that kills you quickly and cheaply.

refurb 14y ago
While it's true that insurance companies use cost as a major driver for decisions, however it's not the only driver. In the US, insurance companies compete with eachother to provide coverage for employers. Many (not all) companies want insurance that is beneficial for their employers. If you drop coverage for something an employer wants, you may lose a major customer.

refurb 14y ago

The "award system" for drug development is full of problems. Who makes the call as to how much to award? Who decides who the award goes to (very few drugs are develop by one group alone)? Who decides when a drug is actually better than existing treatments? Insurance companies already reward innovation. When a new drug hits the market, insurance companies collect and review all the data available and decide on how much access they'll provide their customers with. This analysis includes looking at a drug's impact on total cost of care.

wtallis 14y ago
Right now, the insurance companies' decisions are skewed by the fact that the new drugs have to be compared against the price of generic drugs. That means that unless the new treatment is orders of magnitude better, it won't be much of a cost savings until long after the inventors should have been rewarded for their innovation.

dfc 14y ago

I was struck by how little effort the author put into describing the proposed solution for "the poster child for patents." Is the Atlantic going downhill? How do you let drug companies recoup costs quicker without reducing the oversight that goes into drug approval? I am also a little curious about the free market implications. Instead of the invisible hand guiding drug development we will be relying on government autocrats? It seems that the incentives for governments to lengthen patent protection would just shift their nefarious attention to the prize system and drug approval process.

nitrogen 14y ago
I don't see (har har) an invisible hand guiding commercial pharmaceutical development. I see an oligopoly of pharmaceutical corporations acting out of unenlightened self interest. From my layman's perspective, it seems that curing diseases is largely done by government- and university-funded research, while treating symptoms for profit is the domain of corporate R&D.
- rz2k 14y ago
  It could be, because that isn't how it works :) An oversimplified summary is that the majority of the pipeline for new drugs is in small companies. When one of these small companies develops a new compound that has an enormous potential market, it is purchased by one of the large companies that has better expertise in distribution and marketing, and can scale up production much more efficiently. A tremendous amount of funding is put into the development of new drugs, yet it should be no surprise that much of this research produces nothing useful. Innovation anywhere results in hits and misses, yet investors are willing to assume the risk when they believe a certain percentage of success will sufficiently balance out the failures. In effect, strong property rights allows a modularization of the different roles of drug development. If people truly believe that there is a problem with the pharmaceutical industry, they should identify what the problem is first, and then unemotionally analyze how they could address those problems. I tend to believe that there is a general consensus that the growing portion of GDP being devoted to pharmaceuticals is not sustainable, and quite likely already more than it would be in a better optimized economy. What constrains the demand for pharmaceuticals? If something will save save your life, you may be willing to spend a million dollars on it. However, if you only have a 1/1000 chance of needing something, you may not be willing to spend $1000 on it when you're not under the gun. In order to balance all the many eventualities for potentially needed medical treatment either your government or insurance provider collects and organizes resources for people who need treatment today with the promise that all of the contributors will also receive treatment when needed. How much treatment? How much treatment is generally determined by whatever is medically necessary. There may be some wiggle room on the definition of medically necessary, but it doesn't matter because this isn't what determines how much medical treatment you receive or might receive. What really determines how much medical treatment you can receive is how much medical treatment is available. It probably sounds extremely cynical, but the idea of destroying pharmaceutical patents would likely accomplish what it sets out to do. It would dramatically lower expenditures on medicine. However, it wouldn't be because pharmaceutical companies would lose their profits,\1 it is because it would break the advance and development of new compounds that is probably occurring at too fast a rate. Fueling the excessive rate of development, if it is excessive, is the knowledge of investors that the healthcare market is in a perpetual failure state. There is no constraint on demand. Unlike just about any other product, as long as you make a better product there will always be demand. Imagine doubling the price of a house in order to make it invulnerable to tornadoes. Maybe some people would do it, but they don't get the chance to purchase the modification while a tornado is bearing down on them, and they can't purchase different tiers of tornado insurance then be understandably furious when they find out it doesn't cover emergency home modifications. With other products, even potentially life-saving home improvements, people don't buy them just because they are better, they buy them if they are better and the improvement outweighs the additional cost. If I were to rationally rank my preferences, I would rank an education that affects the quality of my adult life higher than I would rank a life-saving procedure that extended my life ten years. Some people would be able to choose both, etc, but no one is making those kinds of decisions about how much coverage they get, they simply choose 'whatever is medically necessary', by which they really mean, 'every sort of treatment that has completed development by the time I can use it'. \1 One can invest in pharmaceutical companies if they think they have magical returns on investment, because little of the revenue is ultimately directed toward expensive research or acquisitions justifying investments in research done elsewhere. Judging by the quality of comments in the thread about efficient markets this morning, they may very well happen!

alexqgb 14y ago

I'm always astonished by the idea that, were it not for patents and the profits they promise, "no motivation to develop drugs would exist". At one point I worked with a group that raised money to finance medical research for patients with lupus. These were folks who were seen as too few, and suffering from something too complex, to be profitable. For the most part they were relying on some pretty toxic treatments that hadn't progressed since the 1950's - the pharmaceutical equivalent of pre-anastasia surgery. Believe me, the people suffering from this were HIGHLY motivated to find a cure, and given an organization capable of focusing that interest, they've raised millions upon millions of dollars* to do exactly that. This was an early form of crowd-funding and it just obliterates the argument that "without patents, there's no motivation to cure stuff." I'm sorry, but that is absolutely, categorically, and demonstrably false. If people are sick and dying, they have bottomless motivation. Indeed, the extraordinarily high prices people people put on their own lives ("my kingdom for a horse!") represents a profound reservoir of motivation. The patent and approval system diffuses this deep and natural drive, replacing it with the more limited motivation offered by monopolistic rent-seeking (which aims not to cure disease, but to make it 'manageable'). The thing about an awful disease is that it develops a sense of community. I cannot imagine, for instance, someone who has raised a lot of money to find a cure saying, "yeah, but fuck the next generation that comes along and gets hit with the same affliction - those guys are on their own. WE paid for this, and the cure is OURS. They can reinvent their own damn wheel if they want to live." Just...no, that's not how people think. What they really think is that in devoting themselves to finding a cure, they are finding a valuable role for themselves in a society that tends to see them as victims. It's how they recover a sense of self-worth and dignity. They are PROUD to pay it forward. Indeed, one of the top sentiments I heard from people I interviewed was "I want to find a cure so that no one else anywhere in the world ever has to suffer what I've gone through because NOBODY deserves this." THAT's what real decency sounds like. And it's what our patent system frustrates in a very profound way. I know the pharmaceutical industry is always brought up as the tough case against patent reform - the exception that "must" be made in any discussions tending towards to liberalization. I'd argue the opposite. I'd say that this is one of the easiest cases to make. Maybe not a decade ago, but as the organizing power of the internet comes into focus, I can see a world where direct and massively distributed research finance is the norm, with the results made openly available to the entire world. People who are sick used to feel terribly isolated. Thanks to the internet, that's changing. They're finding they discover others going through the same thing, and that they can use the same channels to pool their resources. Were they given tax credits, their resources would increase substantially. And they don't want to "manage" their diseases. They want to cure them. Researchers working on behalf of people trying to solve their own problem pursue tacks different from those who are working from companies looking to exploit that problem most profitably. And when people finding their own cures succede, their natural impulse is to share their triumph with all mankind, the world over, not start trade wars over IP that use the pain and death of millions already in - or facing - poverty as leverage. *People who say research costs billions, not millions have been suckered by the most pernicious line of bullshit imaginable. The "billions" figure does not represent actual R&D costs, which, in a shocking number of cases, represent single-digit percentages of pharmaceutical company budgets. Instead, they represent the fully loaded costs of maintain legal departments to protect patents and marketing departments to push drugs in cases where they have marginal or negative value. Inflating the reported development costs into the billions is simply propaganda designed to make any system that doesn't involve patents seem like a financial impossibility.

cturner 14y ago

I'm a big fan of Boldrin/Levine but suspect they're wrong about this. The reason medical investigation is so expensive is because there's so much red tape around it in the form of approvals, and the convoluted systems health coverage in the developed world. It's a classic insiders' club. People got institutionalised into the culture, and then can swap between government and industry. There's no strong incentive for anyone in the game to keep costs down. Much more important for the insiders that the barriers remain high.

PatentTroll 14y ago
But there is a reasonable expectation that a pill your doctor prescribes will not kill you (with few notable exceptions). This is a good thing. Who is better at safety, the "free market" or the government?
- kansface 14y ago
  Why do you quote free market and not the government. Neither one has any interest in actually promoting safety- both are only interested in security theater or protecting their bottom line. See the profitable war on drugs or the TSA. I really don't know the answer to the question, but the clear victor certainly isn't the government.
luriel 14y ago
It is a textbook case of regulatory capture. Still, abolishing patents would go a long way to allowing real competition and progress in healthcare.