Cheaper Drugs or Missing Drugs? Why Patents on Drugs Help Consumers

Many voices are clamoring for abolition of patent protection on drugs or compulsory licensing of patent drugs at reduced rates. Some nations already demand this. The simple-minded thinking behind this is that by eliminating the high royalties that patent holders can command for their drugs or other products, prices will be lowered and the masses will be blessed. It takes only a little consideration to realize that this movement is more about gaining political power and popularity than it is about strengthening health care, for if the profit incentive is removed, there is no incentive to invest billions in drug discovery, development, and testing. There would be no incentive to take on the extreme risks of marketing a drug. In short, there would simply be far fewer drugs.

Tamoxifen is one example. A brief summary of the issues is provided in a letter-to-the-editor today in the Wall Street Journal by Michael Murphy of Cambridge, Massachusetts:

Regarding the letters of Oct. 7, 15 and 19 responding to your editorial "The 'Pay For Delay' Rap" (Oct. 5): The underlying assumption seems to be that lower drug prices will always benefit consumers. However, this assumption is not just wrong; it has the potential to significantly harm consumers as well.

To demonstrate how, consider the story of tamoxifen, a drug originally developed in 1962 by ICI (now AstraZeneca PLC) as a contraceptive. Although this research was unsuccessful, an unrelated study at the time found another potential use for tamoxifen: treating breast cancer. However, ICI also considered abandoning its tamoxifen research because of economic concerns, most notably its ongoing inability to patent tamoxifen in the U.S. Fortunately, one of the scientists was able to convince ICI to continue development.

AstraZeneca was finally granted a U.S. patent for tamoxifen in 1985, but two years later this patent was challenged by Barr Pharmaceuticals (which wanted to market a generic version). In 1992 the patent was ruled unenforceable, which was likely a fluke ruling, seeing as the patent was upheld in three later challenges. But despite the likelihood that it would prevail on appeal, AstraZeneca instead agreed to a reverse settlement with Barr that preserved its patent while allowing Barr to immediately market tamoxifen at a slightly reduced price.

Though consumers paid less for tamoxifen as a result of this settlement, the Federal Trade Commission opposed it, believing this was a "weak" patent that deserved far less protection. Had ICI been aware of this in 1972, it may have abandoned its tamoxifen research after all. Instead, an estimated 400,000 people are alive today who otherwise would not be thanks to tamoxifen, and I doubt many are concerned that they overpaid.

Related reading: Barr's press-release about their patent victory resulting in lower prices for Tamoxifen. But if the patent pain ICI/Astrazeneca faced had been recognized initially, we simply wouldn't have had this drug today. We need patent protection to give innovators a chance of realizing significant gains for those few and rare drugs that puss through the increasingly difficult hurdles the FDA and other have put in the path to market. Without incentives, innovation dies--and so do those who could have benefited from the drugs.

Score One for the Big Guys: How to Trick a Future Nobel Laureate into Walking Away from a Patent and Giving Away His Rights for Free

Tim O'Reilly (@timoreilly on Twitter) had a recent tweet about the Nobel Laureate Andre Geim who discovered graphene and many potential uses for the super strong two-dimensional diamond-like material. His tweet was "Puts the lie to the claim that patents help small inventors: Why Geim Never Patented Graphene http://bit.ly/9QrEC3". The link is to a discussion on Slashdot that begins with this observation about why Dr. Geim didn't patent graphene. Turns out he almost did, but chose not to after a conversation with someone from a big multinational company that could become a major user of graphene in the future. Here's the content that Tim O'Reilly and others feel shows why patents don't help small business owners:

gbrumfiel writes

"As we discussed on Tuesday, Andre Geim won this year's Nobel prize in physics for graphene, but he never patented it. In an interview with Nature News, he explains why: 'We considered patenting; we prepared a patent and it was nearly filed. Then I had an interaction with a big, multinational electronics company. I approached a guy at a conference and said, "We've got this patent coming up, would you be interested in sponsoring it over the years?" It's quite expensive to keep a patent alive for 20 years. The guy told me, "We are looking at graphene, and it might have a future in the long term. If after ten years we find it's really as good as it promises, we will put a hundred patent lawyers on it to write a hundred patents a day, and you will spend the rest of your life, and the gross domestic product of your little island, suing us." That's a direct quote.'"

While some people, including some in the anti-patent community, see this as a self-evident case for the problem with patents, it's actually just the opposite, in my opinion.

Look at the story again. A genius on the verge of filing a foundational patent for a major breakthrough in technology approaches a large corporation who might benefit from the technology. The company learns that the inventor is about to file a patent. A valid patent would mean that the company would have to pay royalties for the invention, perhaps very expensive royalties. If no patent is filed, the company can use the technology for free and develop its own patents without having to cross-license or worry about what Andre Geim owns. Hmm, which would be better: paying a lot, or paying nothing? Having to work with an inventor or tech transfer office or new patent owner who may end up thinking an invention is worth billions, or having the whole thing pretty much gratis? Tough call, but I think the corporate leader was quick to recognize the advantages to nipping the patent threat in the bud. How could he talk the inventor out of a patent? What negotiating tactic to deploy? ah, how about the Hindenburg? That's where you explain to the other party that their intended course of action would be a flaming disaster, with burning bodies falling out of the sky--oh, the humanity!--resulting in the adversary becoming toast themselves.

The Hindenberg it is. The corporate leader then explains that IF Geim is so foolish, so greedy, so inhumane as to file a patent, disastrous suffering will follow and he'll be burned. "100 patents a day!" Overwhelming force! You'll go into debt suing us for nothing! You'll be toast, baby. One big flaming Hindenburg crashing into the ground.

Baloney! All bluff and bluster. But the intimidation and scare tactics work. "OK, OK, I won't file my patent. Sorry for even thinking about that. Now I see that patents don't help the little guy, Mr. Big. Here, take what I've got for free. I'm just honored to watch you commercialize my work."

Patents are the great equalizer. It's what gives lone inventors a fighting chance against the big corporation that wants to take what they've got for free. It's not easy and may not work, but with patents you've got a chance and corporations know it. Good ones respect that and will work with out. Others will try to take what you've got anyway, or better yet if they can, talk you out of pursuing a patent. Without one, you've already surrendered. You might as well throw the keys of your car to any passing stranger and hope they will pay you someday after they drive away.

The story isn't about why patents don't help the little guy. In fact, I think it's about how much some big corporations despise and loathe patents in the hands of little guys. So much so that they would make outrageous statements to trick a brilliant scientists into NOT doing the one thing that could have helped him most: filing a patent. Instead, he handed them his inventions for free. Score one for the big guys.