Against Intellectual Monopoly

sponsored study to conclude we would be better off without patents.
The Cost of New Drugs, Revisited
    Much of the case for drug patents rests on the high cost of bringing drugs to
market. Most studies have been sponsored by the pharmaceutical industry
and are so quite suspect. In our previous analysis, we have already seen one
huge reason for suspicion: the cost of new drugs includes not only the cost
of failed projects; that would be reasonable. It includes also the R&D cost
for me-too drugs, which is about 75 percent of all R&D cost; and that is a
lot less reasonable. The story does not end here, though, so let us proceed
with the accounting.
    The Consumer Project on Technology examined the cost of clinical trials
for orphan drugs - good data are available for these drugs because they
are eligible for special government benefits.42 A pharmaceutical industrysponsored study estimated the average cost of clinical trials for a drug at
about $24.5 million 1995 dollars. However, for orphan drugs where better data are available, the average cost of clinical trials was only about $6.5
million 1995 dollars - yet there is no reason to believe that these clinical
trials are in any way atypical.43

    A 2002 report of the Center for Economic and Policy Research also
estimates costs orders of magnitude less than those claimed by the pharmaceutical companies.44 It also finds that, holding output of pharmaceutical
products constant, private companies tend to spend twice as much as public
medical research centers to come up with new drugs. As one might suspect,
the report documents that the additional costs of the private drug monopolists are mostly legal and advertising costs: the first to get patents and defend
them, and the second to convince doctors to prescribe "their" drug instead
of the alternative, most often a generic and cheaper alternative.
    Last, but not least, are clinical trials: the forbearance we asked of you a
few pages ago may now be redeemed. Even after accounting for the money
wasted in me-too drugs, and the resources thrown into the legal and marketing costs the patent system induces, it is still a fact that, on December 5,
2006, Pfizer had to write off $800 million of clinical trials expenses when
it gave up on the production and commercialization of Torcetrapib. Somehow, somewhere, the pharmaceutical industry must recoup such costs. By
common admission, from both pharmaceutical firms and outside observers,
the cost of clinical trials now amounts to about 80 percent or more of the
total cost of developing a new drug. Although clinical trials related to imitative drugs are almost a complete waste from a social point of view, those
related to truly innovative and therapeutically beneficial drugs are not so.
On the contrary, they are socially very valuable and need to be recouped.
Are pharmaceutical patents necessary to accomplish this?
    No, they are not. And because this chapter is already long enough, we will
be brief and leave the details of this argument for the next, final chapter, in
which we address a few proposals for reform. Clinical trials are the step in
the process of developing a new drug during which information is produced
about the effect of a given chemical compound on a large sample of humans.
The cost of distributing and absorbing this information being low, and the
cost of acquiring it being high, it has a strong public good component. There
is also no reason, by way of either economic efficiency or equity, why this
should be paid for by the pharmaceutical firms developing the new drug -
indeed, as they will be first to market they have a strong conflict of interest.
The cost of clinical trials cost would better paid from the public purse, for
example, by competitive and peer-reviewed National Institutes of Health
grants - at which point patents on drugs would no longer have any reason
to exist.

The Ultimate Virus
    The pharmaceutical malaise has many ingredients - the FDA system of regulation, the entire idea that some drugs should be available by prescription
only, and the broader problems of health insurance and who pays for drugs.
To argue that the system could be fixed by eliminating patents on pharmaceuticals would be foolish. It would be foolish also to think that it would
make sense to abolish patents on pharmaceuticals without also reforming
the infrastructure - such as the way clinical trials are paid for and made
available - at the same