The Case for Abolishing Patents (Yes, All of Them)

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!

They didn't invent the tablet, they invented the tablet as we know it. It consider that to be a much harder thing to do. The concept of the tablet hardly needed inventing, just watch Star Trek, it was pretty obvious. The less obvious is the "how" (what you call the execution).

"it's closer to $1 billion on average."

As mentioned, that's a hugely suspicious "fact". As noted by the National Center for Biotechnology Information.

"In the March 2003 edition of the Journal of Health Economics, a trio of economists from the United States wrote about a number. Soon after, that number began popping up all over the place — in newspapers and political speeches, on television and the Internet. But the figure, despite reaching near-canonical status, drew criticism. Some said it was inflated. Less diplomatic detractors said it was a 9-digit fairy tale.

That number was 802,000,000. It was, according to the 2003 study, the number of US dollars that pharmaceutical companies spent, on average, to bring a new drug to market (J Health Econ 2003;22[2]:151-85). Now there are new numbers. Some health economists peg the current cost of drug development at US$1.3 billion, others at US$1.7 billion."

Full article here.

http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2630351/

Key point: the data used to come up with the original number came from an industry financed source and was not made public. And here's a bit more coverage that throws additional cold water on 10 figure costs.

http://www.theglobeandmail.com/life/health-and-fitness/drug-...

While the actual costs remain unknown, it's a safe bet that they're nothing like the inflated figures being circulated by the industry.

I agree; it's a point often overlooked that execution can be innovation in and of itself.

I assume you've quantified that statistical probability to support your declaration that there's a "decent chance"?