The Price of Everything - Eduardo Porter [68]
Prescription drugs embody the good and the bad of the patent system. The research and development that goes into developing a new drug and shepherding it successfully through the regulatory process in the United States costs the pharmaceutical industry ten to twelve years and about $1.27 billion. Yet after all that is done, the cost of making the pills often falls to a few pennies apiece. So new drugs are granted twenty-year patents—from the day they are registered—to stop generics’ makers from selling cheap knockoffs and undercutting their creators.
But patents have a dark side. By keeping drug prices high, they bar many sick people from access to potentially lifesaving medicines—setting the interests of inventors against the public-health imperative of saving lives. Brazil, Argentina, India, and other developing countries that were not in the business of inventing drugs refused until recently to grant patent protection for pharmaceuticals. India’s patent law of 1970 made it easy for domestic generic manufacturers to get around multinational companies’ patents on medicines. This fostered the growth of a large generic drug industry—which could sell pills for much less than the pharmaceutical companies that invented them.
Fifteen years ago, many developing countries accepted granting drugs twenty-year patents as part of global negotiations that led to the creation of the World Trade Organization in 1995. Since then, however, many poor countries battling the scourge of AIDS—like Zimbabwe, Indonesia, and Brazil—have taken advantage of escape clauses in the agreement to break patents in order to get needed drugs for less. In 2008 the Brazilian health ministry estimated that Indian generics manufacturers could supply the antiretroviral drug tenofovir for $170 per patient per year, a small fraction of the $1,387 charged by Gilead, who owned the patent.
On the other hand, inventors of drugs would not survive in business without patents. And without the inventors the drugs would not come into being. Granting patents for a limited period seems a reasonable trade-off. The time must be long enough to allow those who invented the drug to recoup their costs and make a profit, but no longer—to ensure that competition with generics will bring its price down and make it broadly accessible across the population.
In the United States, the period of patent protection starts ticking the moment a pharmaceutical company requests it. On average, new drugs have about twelve years of protection left after they finally arrive on pharmacy shelves. Once generics enter the fray prices plunge. They capture about 60 percent of the market by volume within nine years. In twelve years they take 80 percent. By then, the price of drugs has fallen by half.
Patents have been drivers of innovation. They have encouraged inventors to create and have diffused their creations—encouraging owners to license their intellectual property. For instance, a survey of 133 multinationals by a British consulting firm found that 102 had licensed technology from others and 82 had licensed technology to others. The market for technological licenses is worth about $25 billion in North America alone, according to one study. In 2000 approximately 20 percent of IBM’s profit derived from the sale of licenses. And in the United States, new firms and investment groups have appeared in recent years to buy, sell, broker, license, and auction patents, drawing venture capital into the field.
This transfer of ideas would be unlikely to happen if information were free. Chances are nobody