Intellectual property for medicinal drugs?

Medicinal drugs are often named as an example of where intellectual property protection has an advantage for consumers. For example, in a recent video titled ‘End Software Patents’, Alex Tabarrok says:

“In an industry like pharmaceuticals, patents make sense. It costs about a billion dollars to develop the average new drug. But a generic imitation might cost just 50 cents a pill. If innovators are not able to recoup their cost of development, there will be no-one left to innovate. But does every innovative idea need a 20 year monopoly?”

He then goes on to give reasons why patents may not be a good idea in other fields. I’d like to analyze the given reason in support for patents for medicinal drugs.

A billion dollars sounds like a high number, but the reason a firm is now willing to spend that is because they expect to have concentrated benefits. If there is no expectation of such concentrated benefits, actors in society may still be willing to spend lower amounts of money and time individually for less concentrated benefits, but attain far-reaching results collectively.

Furthermore, a high stated cost in current-day development of knowledge about medicine (production and its effects), can also lead us to question if there are ways that costs can be lowered, through changing the rules of the health care game. Health care is a highly publicly regulated industry and enjoys rent-seeking on all levels.

Instead of favoring levels upon levels of centrally planned and controlled production of health care (which patents are part of), why not consider allowing individuals to compete and contract freely, and build their institutions from the bottom-up. Competing drug testers, competing associations of doctors, competing hospitals and best practices, and competing real insurance (not the quasi-welfare ‘insurance’ that exists today). And all would have the freedom to change, set their own standards, and learn from each other. What would that do to the cost of developing new knowledge about drugs, and how it is dispersed?

The health care industry is in competition with all other industries. If the health care industry didn't have much to offer to customers, then people would spend their money elsewhere. One clear shift away from health care would be prevention. People would spend more resources preventing getting injured and diseases if doctors and hospitals weren't able to provide what they can today. My point here is that there is such a thing as ‘creating (and maintaining) an industry’.

There are individuals who are directly interested in the continued development of drug (and other medical) research. They are the doctors and the people who want to sell drugs (factories and pharmacies), and also patients. Apart from the creation of the drugs themselves, what is just as important is knowledge about them and how they interact with human biologies. This means in a world without intellectual property, we can expect doctors to form close ties with and fund medical research; most likely through doctor’s associations, which will be required by customers for predictability and accountability.

As we see today, many individuals and institutions are also willing to donate to such causes.


Alex has written to me:

“Thanks. You may be interested to know that I have written a lot on cutting back FDA regulations to lower the costs of new drugs.
Alex Tabarrok”