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.