The Tamiflu Paradox: Your Markets or Your Life

Sebastian Mallaby poses an interesting dilemma in today’s Washington Post.

Consider one piece of the avian flu mess: the challenge of stockpiling the potentially lifesaving drug Tamiflu. The challenge presents the standard intellectual-property dilemma: Should we respect the patent rights of Roche, Tamiflu's maker, thereby strengthening incentives for companies to develop tomorrow's cures? Or should we force Roche to surrender its property, thereby allowing the government to stockpile Tamiflu faster and more cheaply?

He points out that “if every country ordered enough Tamiflu to treat a fifth of its people, it might take Roche a full decade to deliver.” So it’s little wonder that other nations - Taiwan, India, Thailand, Argentina - have said that they would just make the drug themselves, never mind the patents, if needed. The US, that bastion of the free market, has used the threat of ignoring patent laws as leverage to coerce Roche to expanding operations in the US.

The worry is clear. If countries ignore patent laws every time drug companies come up with an important life-saving drugs - or even some of the time - there will be far less of an incentive to come up with important life-saving drugs.

And that would make sense, if we really relied on the market to produce important life-saving drugs. The fact of the matter is, however, that the United States government gives grants to private pharmaceutical companies to the tune of $30 billion a year on biomedical research, primarily through the National Institutes of Health. Additionally, drug companies can and do deduct 34 percent of their R&D expenses under federal tax law.

The idea behind public funding for drug research is that we all benefit from the life-saving drugs it produces. But when we go to recoup some of that investment, we’re told that it would provide a disincentive for future research. (I’m speaking generally here. Roche is Swiss company.)

The flip side of the problem is in the nature of patents themselves, which create monopolies - the very antithesis of the Free Market. This is all good and well, I suppose, when it comes to microchips or a better mousetrap. But the dilemma Mallaby poses demonstrates quite nicely that these monopolies are hazardous to your health.

Dean Baker does a nice riff on this on MaxSpeak.

Monopoly profits give drug companies incentives to undertake expensive and often deceptive marketing campaigns. The industry spends more on marketing its drugs than it does on research. In some cases this marketing has effectively amounted to kickbacks to doctors who prescribe their drugs.

Patent monopolies also provide incentives to research copycat drugs rather than breakthrough drugs. The industry’s data suggest that approximately two-thirds of its research money is spent developing copycat drugs.

Patent monopolies also encourage drug companies to conceal negative research finding, or even to lie about their research. The New York Times has run many excellent articles over the years highlighting such incidents. (Merck’s effort to conceal potentially harmful side effects from Vioxx is the latest installment on this list.)

Patent monopolies encourage the production of counterfeit drugs, which can be sold at a fraction of the price of the patented drug.

And, patent monopolies encourage drug companies to spend large amounts of money on lawyers, lobbyists, and propaganda to protect and extend their monopolies.

Clearly this particular public-private partnership works quite well for the private sector and fails to produce the goods for the public. Mother Jones asks if it is Time to Socialize Drug Research. And they conclude:

The pharmaceutical industry as it stands still does good work, and I don't think full-blown socialism is called for just yet. No, I much prefer creeping socialism. Right now most government research money goes towards basic research, rather than the development and testing of new drugs. Why not steer a couple billion this way, as a test to see if the government can do drug innovation on its own?

But we don’t need to dismantle or even tinker with the pharmaceutical companies to start putting public money to public use. Let Big Pharma spend millions on pills to combat the scourge of impotence - and charge as they like for them. Wean them off the teat of government subsidies - and let the free market work. Redirect 100% of government research funds into government research. Public research for the public good. Then license the drugs that result to all US drug companies. They can compete with other. And let the market work again.

That’s not “socialism”, it’s just good sense.