[Ip-health] arstechnica: economics of pharmaceuticals and IP

[Manon Ress]

The economics of pharmaceuticals and intellectual property
http://arstechnica.com/news.ars/post/20061227-8506.html

12/27/2006 5:32:17 PM, by John Timmer

Medical journals probably receive relatively few submissions from
economists and publish even fewer. But when the economist is Joseph
E. Stiglitz, winner of a Nobel Prize and a university professor at
Columbia, the BMJ (the modern descendant of the British Medical
Journal) was willing to make an exception. In an open access
editorial, Stiglitz takes a look at the economics of drug
development, and finds them wanting.

The editorial brings together what might be viewed as three
overlapping but separate issues: intellectual property laws, the
economics of drug development and distribution, and government aid
targeted at the developing world. Stiglitz's take on intellectual
property laws is decidedly negative; he terms them "inefficient" and
a means for the creation of monopoly powers that distort the economy.
They are tolerated, he suggests, because they are believed to reward
innovation. But he argues that, in the case of medical knowledge, the
cost in terms of human life far outweighs any benefits of spurring
innovation, in part because economic issues severely limit the scope
of innovation.

Stiglitz argues that the human cost of pharmaceutical intellectual
property is exacted primarily from the developing world, which cannot
afford current drugs and is blocked from developing or using generic
alternatives. Meanwhile, new drug development targets very few
developing world diseases, primarily because their victims are poor
and cannot support the cost of the research involved. It's at this
point that the editorial gets somewhat confused; it's not clear
whether Stiglitz views the pharmaceutical companies as embodiments of
the problem, or passive victims of economic reality. He slams the
companies for spending more on advertising than research, and more on
lifestyle drugs than those that target diseases. In the same
paragraph, however, Stiglitz notes that "poor people cannot afford
drugs, and drug companies make investments that yield the highest
returns," and suggests that even a company he praises as socially
responsible is helpless in the face of that economic reality.

Regardless of where the blame lies, his argument is that there is
little incentive for commercial entities to invest in drugs that
target the developing world, which seems borne out by reality. As a
solution, he recommends that developed nations sponsor prizes for
research targeted towards diseases in the developing world and
provide the resulting intellectual property to generic drug makers.
Stiglitz suggests that the prize money should supplement existing
research grants, and be viewed as part of the normal foreign aid budget.

Overall, Stiglitz has some interesting points and suggestions. By
trying to be overly broad in his arguments, however, he appears to
risk undercutting his own case. As noted above, his mixed messages on
intellectual property, the economics of drug development, and the
role of pharmaceutical companies appear designed to inflame rather
than edify. His analysis of the economics of whole genome sequencing
vs. targeted cloning also appeared to be confused. In contrast to
this overly-broad analysis, Stiglitz provides very few specifics
regarding solutions. He suggests that normal research funds would
drive the development of new drugs without indicating where the money
for the necessary safety and efficacy trials should come from. He
also doesn't suggest how the diseases targeted by these prizes would
be determined, leaving open the possibility that government and
private industry research would wind up racing each other towards the
same goal.

Because of the choice of arguments and the lack of specifics, the
editorial reads like it was intended to provoke discussion, rather
than propose specific answers. By including poorly formed ideas and
some inflammatory language, however, the piece seems to risk
alienating some of the people Stiglitz may have been hoping to
convince. That would be a shame, because some of the ideas there may
have merit; if there's any you feel are worth serious consideration,
please do so in our discussion.

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