Glenn Reynolds on “Good Drugs”

I liked Glenn Reynold’s recent article “Good Drugs” on Tech Central Station. However (just love that word), I don’t think he comes to terms with the fundamental conundrum about drugs, prices, and research: what would appear to be the best policy on pharmaceuticals requires a careful weighing of competing interests that are all valid.

Government is interfering with the free market in the pharmaceutical business up to its hip boots. Patents–presumably temporary monopolies granted by government–are granted to pharmaceutical companies to give them incentives to do more research. And that would be a good thing. The federal government’s Food and Drug Administration (FDA) takes up a good part of the term of the patents on a new drug in its review process. The purpose of this review is to ensure that new drugs are safe and effective. And that would be a good thing. With the new drug benefit in the recently passed Medicare reform bill, seniors may be paying less for the drugs they need to continue to live healthy lives. And that would be a good thing, too.

It’s not as though the drug benefit is an interference in the operation of the market and patents and the review process aren’t. They’re all interference in the operation of the market and I doubt that any of them will go away soon. But I do believe that we need give a lot more scrutiny to all of these measures.

For example, I don’t much care for the new drug benefit because it’s insufficiently needs-based. I don’t there’s as much need for the government to pay for the pharmaceuticals of octogenarian billionaires as of octogenarian share-croppers.

Patents, too, need more scrutiny. The purpose of a patent is not just so pharmaceutical companies can make more money. It’s so that they can devote that money to further research. And there’s reasonable question as to whether that’s what’s actually happening.

For example, according to Glaxo-Smith-Kline’s annual review, the company derives 25% of its operating revenue from the sale of “new” pharmaceuticals. You’d think that this would give a powerful incentive for the company to be devoting a lot of its profits to more research. But, according to the same review, GSK’s profits are rising more than twice as fast as its research budget. This suggests that GSK has higher priorities than research.

And that doesn’t even consider the likelihood that a substantial proportion of GSK’s research budget is, for example, “field trials” which are arguably marketing rather than R&D. Or what proportion of the research budget is devoted to finding pharmaceuticals that are competitive with other companies’ product offereing which is, again, arguably marketing rather than R&D.

I believe that it’s possible to come up with a much more narrowly-tailored patent system that continues to incentivize research but reduces drug costs at the same time.

However (see what I mean), the central point of Mr. Reynold’s article bears repeating so I’ll let him do it:

“I hope that the debaters will keep their eye on the ball — how to promote progress in producing new drugs that solve long-standing problems — and not engage in elitist talk about which problems are worthy of solution, and which are not. A cure for cancer may take longer than a cure for heartburn, but both are cures – which is more than the drug-price critics have managed to come up with”