Christian Engström, Pirat

9 mars 2011

An alternative to pharmaceutical patents

Filed under: English,fri kunskap,informationspolitik — Christian Engström @ 13:40

Yesterday we discussed pharmaceutical patents in the Green Group in the European Parliament, so I republish the Pirate Party’s proposal here. This text is also available in Swedish.

Pharmaceutical patents are harmful

Patents on drugs, or pharmaceutical patents, have many negative effects.

  • Pharmaceutical patents prevent hundreds of thousands of people in poor countries from receiving the drugs they need, even though the drugs exist and could save their lives.
  • Pharmaceutical patents distort the pharmaceutical research priorities, since it becomes more profitable to treat the symptoms of diseases that come from a high standard of living, than to cure poor people from malaria.
  • Pharmaceutical patents continue to lead to ever increasing costs for drugs in Sweden and Europe, outside any form of political control

Are pharmaceutical patents necessary?

Despite all these negative effects, there are many people who defend pharmaceutical patents, and say they are nevertheless necessary. Pharmaceutical research is very expensive, so we have to make sure it is properly funded. Otherwise we wouldn’t get any new drugs in the future, and that would be even worse.

”Because it is so easy for anybody to copy a pharmaceutical substance that has cost billions in research money to develop, we unfortunately have to let the pharmaceutical companies have monopolies on new drugs,” those who defend pharmaceutical patents say.

But that is not true.

The first part of the argument is of course valid. One way or another we have to make sure that there is serious money available for pharmaceutical research.

But the claim that pharmaceutical patents is the only conceivable system for raising that money, is simply not true.

Klicka för större bild

Click to enlarge

The government pays for the research today

Today it is already the public sector (henceforth called ”the government”) that pays for the bulk of all drugs that are used in Europe, thanks to various systems for universal medical coverage. (See for example page 37 in this report from EFPIA [cached], The European Federation of Pharmaceutical Industries and Associations.) It is the government that pays for the pharmaceutical research today, by paying high prices to the pharmaceutical companies for patented drugs.

So there is no natural law that says that patents are the only way to get new drugs developed. If ”the government” in the different countries funded the research directly, and made the results freely available, this would be at least as reasonable as today’s model, where the government instead creates and maintains private monopolies for the pharmaceutical companies.

The relevant question is which model provides the most efficient and cost effective way of funding pharmaceutical research. Because nobody claims that pharmaceutical research is cheap. The average cost for developing a new drug is just over a billion US dollars.

But considering that ”the government” already provides most of the income for the pharmaceutical companies, a reasonable first step would be to find out how much of that income actually goes to research.

Fortunately, this is very easy to do, as all the big pharmaceutical companies have their annual reports available online. As an example, we can look at the numbers for Novartis (page 143), Pfizer or AstraZeneca.

They all spend around 15% of their revenues on research. The other 85% go to other things, according to their own figures. The numbers are typical for the industry.

So the question is: does the patent system really give us, the taxpayers, the maximum amount of pharmaceutical research for the money we are spending on drugs? Or is there room for improvement, when even the pharma companies themselves admit spending 85% of the money we give them on other things?

If the government would instead take 20% of what it currently spends on drugs, and allocate it directly to pharmaceutical research, there would be more money than today for the research. If the results are made freely available, the pharmaceutical companies would be able to produce modern drugs without spending any money on research themselves. All that would remain for the government would be to pay for the actual substances.

Patent free drugs are cheap

How would it affect the price of drugs if there were no pharmaceutical patents? To answer this question, we can look at the experience we have from patent free generic drugs. In that market segment we already have a situation where different (private) manufacturers of the drugs compete with each other, and the government buys from from cheapest and best ones.

And it works!

According to a report from the Swedish Food and Drugs Administration [cached] (pdf in Swedish), the price for drugs dropped on average 70% when they became free of patents (page 13 in the pdf).

In the case of generic drugs we are talking about drugs that are more than 20 years old. For newer drugs the pharmaceutical companies add an even greater surcharge, so the actual savings if pharmaceutical patents are abolished would almost certainly be considerably more than 70%. But let us still be conservative and use that number.

Half the cost, more money to research!

The price for a substance will then drop to 30% if we get rid of the patents. Add 20% to fund future research according to the proposal presented here, and we have reduced the government’s bill for drugs to 50% of what it is today. We would cut the cost in half, while still giving more money to pharmaceutical research.

Isn’t this an idea worth exploring?

What arguments are there for keeping the pharmaceutical patents, and rejecting the cost savings and other benefits possible if we choose a different approach?

Summary

Let us summarise the main points of the proposal:

  • In Europe it is already the government that provides most of the revenues for the pharmaceutical industry, thanks to universal medical coverage.
  • The pharmaceutical companies spend 15% of their revenues on research, according to their own numbers. The remaining 85 are spent on other things (mostly marketing and profits).
  • If the government would instead take 20% of what it currently spends on drugs, and allocate that money directly to pharmaceutical research, there would be more money for research. The pharmaceutical companies wouldn’t have do do any research themselves, so there would be no need for pharmaceutical patents, as they would have no research costs to recoup.
  • Without patents the price of the actual substances drop by at least 70% when they are manufactured on a free market with competition, instead of by a monopolist.

So: compared to today’s system the government’s cost would be 20% (for research) plus 30% (for the substances). A total of 50% of today’s costs, and still more money than today for research.

Realistic on the European level

An obvious counterargument would be that this is not something that Sweden alone could reasonably do. This is true. But on the European level it is quite doable.

If the European governments wanted to, they could easily decide to get rid of pharmaceutical patents, and instead allocate sufficient funds directly to pharmaceutical research. Whether a country recognises patents or not is entirely up to the legislative body of that country to decide. And it is already the government that pays most of the pharmaceutical bill in all European countries.

Europe is big enough and rich enough, both to fund a substantial part of the global pharmaceutical research so that nobody could accuse us of freeriding on others, and to withstand the diplomatic pressures that will no doubt be put upon us the day we choose the open road.

So, to repeat the billion dollar question:

What arguments are there to keep pharmaceutical patents, and to reject the cost savings and improvements that the open road would offer?

The Pirate Party’s position

The Pirate Party wants to abolish pharmaceutical patents as a long term goal, but realises that this requires alternative systems for funding pharmaceutical research. We believe that the introduction of a new system should be done on the European level.

We call on the Commission and other relevant bodies to study the effects of different alternative system, such as the one proposed here, and to take initiatives to put the issue on the European political agenda for discussions.

References

Financing Drug Research: What Are the Issues? [cached] by Dean Baker, Center for Economic and Policy Research

Excess in the pharmaceutical industry by Marcia Angell, Harvard Medical School

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Presentation slides: .odt .ppt

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