Extending Patents for Antibiotics Creates Perverse Incentives(citizenvox.org)
citizenvox.org
Extending Patents for Antibiotics Creates Perverse Incentives
http://www.citizenvox.org/2012/06/12/antibiotic-resistance-gain-ac/
4 comments
Good summary of the article, but I'm not sure I agree with the logic.
If I have a 5 year patent, I have 5 years to make my high-markup profit. If I have a 10 year patent, I have 10 years to make a high-markup profit.
My R&D costs are constant. I need to make at least, say, 10x my R&D profits to stay in business (a lot of products don't pass trials).
So if I have 5 years to amortize the R&D costs instead of 10 years to amortize the R&D costs, I would have to push the antibiotics a lot harder and convince doctors to prescribe them in a lot more instances in order to make the money back.
Whereas if I have 10 years, I can potentially recoup the investment and make a decent profit at half the rate of prescription in the wild. If it were even longer, I'd be able to afford to amortize the R&D costs over an even longer period.
How about instead the patents on lifesaving drugs could actually be extended a LOT more as long as the company agrees to specific capped/regulated licensing costs after an initial period. In other words, after a short patent monopoly expires (3 years, say), in order to keep a monopoly they agree to be regulated in their sub-licensing terms so that the drug can become affordable, but the discovering company still gets an income stream from it (maybe for 20 years from discovery? longer?).
Or give the company options: 5 years total monopoly, 3 years monopoly+17 years regulated sub-licensing, 2 years + 40 years regulated sub-licensing, 1 year + 60 years regulated sub-licensing. Depending on the product, having a long term income stream might end up more valuable than trying to gouge people for 5 years and then making practically nothing.
Of course that assumes that companies are willing to think in terms of long-term profit as opposed to maximizing the current quarter, which is probably the reason this suggestion would never work. Oh well.
If I have a 5 year patent, I have 5 years to make my high-markup profit. If I have a 10 year patent, I have 10 years to make a high-markup profit.
My R&D costs are constant. I need to make at least, say, 10x my R&D profits to stay in business (a lot of products don't pass trials).
So if I have 5 years to amortize the R&D costs instead of 10 years to amortize the R&D costs, I would have to push the antibiotics a lot harder and convince doctors to prescribe them in a lot more instances in order to make the money back.
Whereas if I have 10 years, I can potentially recoup the investment and make a decent profit at half the rate of prescription in the wild. If it were even longer, I'd be able to afford to amortize the R&D costs over an even longer period.
How about instead the patents on lifesaving drugs could actually be extended a LOT more as long as the company agrees to specific capped/regulated licensing costs after an initial period. In other words, after a short patent monopoly expires (3 years, say), in order to keep a monopoly they agree to be regulated in their sub-licensing terms so that the drug can become affordable, but the discovering company still gets an income stream from it (maybe for 20 years from discovery? longer?).
Or give the company options: 5 years total monopoly, 3 years monopoly+17 years regulated sub-licensing, 2 years + 40 years regulated sub-licensing, 1 year + 60 years regulated sub-licensing. Depending on the product, having a long term income stream might end up more valuable than trying to gouge people for 5 years and then making practically nothing.
Of course that assumes that companies are willing to think in terms of long-term profit as opposed to maximizing the current quarter, which is probably the reason this suggestion would never work. Oh well.
Let's say I invented a new antibiotic 12 years ago, and I'm collecting monopoly profits due to 17-year patent protection.
Since the patent term expires in 5 years, I should invest $1 billion in R&D right now, and work around the clock to get an innovative new drug on the market before my monopoly turns into commodity.
But if the patent term is extended for an additional 17 years, I'm no longer in such a hurry to put $1 billion at risk.
Instead, I'll milk every last drop of monopoly profits from this drug. Even though superbugs are becoming more resistant every day, my product is still one of the best on the market.
Maybe I'll invest $100 million a year in R&D, but I can certainly afford to take my time, and more importantly, to take fewer risks.
It's good news for my bank balance, and bad news for patients suffering from drug-resistant bacteria.
Since the patent term expires in 5 years, I should invest $1 billion in R&D right now, and work around the clock to get an innovative new drug on the market before my monopoly turns into commodity.
But if the patent term is extended for an additional 17 years, I'm no longer in such a hurry to put $1 billion at risk.
Instead, I'll milk every last drop of monopoly profits from this drug. Even though superbugs are becoming more resistant every day, my product is still one of the best on the market.
Maybe I'll invest $100 million a year in R&D, but I can certainly afford to take my time, and more importantly, to take fewer risks.
It's good news for my bank balance, and bad news for patients suffering from drug-resistant bacteria.
OK, that's reasonable, but the company is ALSO motivated to dump as many pills on the market as possible, since their profits go to almost zero after generics are available.
Not a summary. But, relevant questions:
1. How do we reduce the costs of drug R&D? Can we crowdsource the process?
2. How can we change the system for getting credit(money) for creating a new drug?
3. Given that antibiotics continually require to be made in stronger/different strains, is the use of antibiotics a flawed way of treating patients?
4. Why are people falling sick?
1. How do we reduce the costs of drug R&D? Can we crowdsource the process?
2. How can we change the system for getting credit(money) for creating a new drug?
3. Given that antibiotics continually require to be made in stronger/different strains, is the use of antibiotics a flawed way of treating patients?
4. Why are people falling sick?
>However, monopoly protections conflict with the need for preservation by encouraging companies to sell as much of the new drug as possible.
That is completely nonsensical economic reasoning. A monopoly reduces availability. Less competition => higher prices => lower quantity demanded.
That is completely nonsensical economic reasoning. A monopoly reduces availability. Less competition => higher prices => lower quantity demanded.
My interpretation of that sentence was that, with limited-time monopoly protection, it's in the producer's interest to sell as much of the stuff as possible before the monopoly ends, after which point it won't be possible to make significant profits from the same product. I haven't yet figured out whether this makes sense.
Hmm, so the idea is that a company will actually sell below the price you'd later see in a competitive market? That's an interesting proposition, but it doesn't hold water.
Is it possible in theory? I doubt it, but I can't disprove it off the top of my head. But it just doesn't happen in the pharma industry. When a drug patent runs out, generics come out and the price drops dramatically, every single time. It is true that name brand prices do actually increase when patents expire, but not the generic prices, and that means that quantity supplied will certainly increase once generics are introduced.
Is it possible in theory? I doubt it, but I can't disprove it off the top of my head. But it just doesn't happen in the pharma industry. When a drug patent runs out, generics come out and the price drops dramatically, every single time. It is true that name brand prices do actually increase when patents expire, but not the generic prices, and that means that quantity supplied will certainly increase once generics are introduced.
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1. Antibiotics lose effectiveness when more frequently used.
2. New antibiotics need to be invented or common infections will become fatal.
3. Extending patent duration encourage drug makers to sell higher volumes of older antibiotics.
4. This makes old antibiotics less effective and reduces incentives to invest R&D in new antibiotics.