Against Intellectual Monopoly

Pharma is not necessarily the
monster some depict, the case for patents in pharmaceuticals is a lot weaker
than most people think - and so, apparently, even under the most favorable
circumstances, patents are not necessarily good for society, for consumers,
or in this case, for sick people. Patents are good for monopolists, but that
much we knew already.
World Shortest History of Pharmaceutical Patents
    Pharmaceuticals are a significant industry and of growing significance. The
industry's market size is approaching $700 billion worldwide and is growing
at annual rates between 5 percent and 8 percent. In the United States, where
drug sales ran at $275 billion in 2006,5 the share of prescription drugs in
total national health-care expenditure increased from 4.9 percent in 1980 to
10 percent in 2004, which corresponds to 1.6 percent of gross national product. New drugs are extremely costly to develop. Hansen, Grabowski, and
Lasagna provide the following estimates of the cost in millions of 1987 dollars of bringing a new chemical entity to market, assuming a success rate of
23 percent for patented drugs.6 The costs due to preclinical testing research
amount to $66 million, which become $142 million when compounded at
an interest rate of 8 percent. The clinical testing costs are $48 million, which
compound to $72 million at the same interest rate. Added up, this gives
$114 million at a zero interest rate and $214 million at an 8 percent interest
rate.

    Notice that the preclinical component of cost is large, and especially so
when the interest rate is taken into account, as the preclinical costs must
be paid before going to clinical trials. More recent estimates by Di Masi,
Grabowski, and Hansen place the total cost of bringing a new drug to
market at around $800 million, in year 2000 dollars.7 Even if a number
of researchers have questioned their methodology, this figure suggests a
spectacular increase in the cost of innovating. This increase is due, mostly,
to the capitalization of the longer and more expensive clinical trials that
the U.S. Food and Drug Administration (FDA) requires. In a recent and
much publicized case, Pfizer announced the write-off of almost $1 billion
of expenditures sunk into the development of a new drug, Torcetrapib,
which failed dramatically short of its expectations.' Of the $1 billion dollars involved, $800 million went to pay for clinical trials, while the Irish
plant where the drug was supposed to be produced cost just $90 million.9
With research and development (R&D) costs of such magnitude, it seems
impossible to even dream of a pharmaceutical industry that could properly
function and innovate in the absence of very strong patent protection. It
was not always this way.
    Historically, intellectual monopoly in pharmaceuticals has varied enormously over time and space. The summary story: the modern pharmaceutical industry developed faster in those countries where patents were fewer
and weaker. Since the Second World War, and the upheaval of the worldwide
distribution of power within the chemical industry that the war brought
about, patent lobbyists have lobbied long and successfully to increase patent
protection for pharmaceutical products. Here are the details of their accomplishments.
    In the United States, drugs have been patentable since the beginning, for
the very simple reason that chemical products have always been patentable.
The United States recognizes two distinct forms of patent: the process by
which a drug is produced may be patented independently of the chemical
formula for the drug. Until 1984, U.S. patent law treated medical discoveries
in the same way as other innovations, and no special treatment was reserved
for drugs. In more recent years, longer and more frequent extensions for
drug patents have been allowed than for other patents. As we already mentioned, the Hatch-Waxman Act of 1984 was designed to compensate for
regulatory requirements that delay the introduction of new drugs. It is
estimated that the act increased effective length of patent protection for
pharmaceuticals by about three to five years.
    In most of continental Europe, until recent years, only the process of
producing a drug could be patented, so once a drug was discovered, a second producer could also produce it provided that it found a different way
of doing so. The rationale behind process versus product patents is given by
the German Association of