BarMittzva Romba: Dancing in the Dark

This is the third of six posts in the BarMittzva Romba series.

A further step taken in 1962 made it possible to shape the raw material from clinical trials into the perfect product. This development hinged on the strategy chosen to reward pharmaceutical companies. In 1962, the options were to offer product, or process patents for drugs or some other form of reward such as a prize for the development of a medicine that has real social benefit (see Kremer and Glennerster’s Strong Medicine).

With process patents if another pharmaceutical company can find a different way to make a drug they too can bring that drug on the market. Process patents had been the norm in Europe prior to 1960. They had been the method in place for a century during which the German pharmaceutical industry developed as the most successful on earth. Under process patents, it does not make economic sense for pharmaceutical companies to put all their eggs in one basket. They are more likely therefore to diversify and hold a portfolio of compounds.

On reviewing the differences between countries with process and product patents in 1962, Senator Kefauver’s staff, charged with looking at the regulation of the pharmaceutical industry, discovered that countries with process patent systems were more innovative than those with product patent systems and that the cost of drugs in countries with process patent systems was considerably less.

Initially in the 1960s holding a product patent meant having a patent that applied to a national territory. The United States was the one leading country who had consistently adopted product patents. As of 1962, despite the data on pharmaceutical innovation and the price of drugs, Congress opted to maintain a product patent system. Other countries also switched from process to product patents.

In 1962, product patents were confined to a national territory and the monopoly they offered was therefore limited. But the development of TRIPS in the 1980s, a development in which Pfizer played a significant part, means that product patents now have a global reach. This has transformed the market for drugs. TRIPS laid the basis for the emergence of blockbuster drugs in the late 1980s – drugs worth a billion dollars a year or more for pharmaceutical companies.

There have been two important unforeseen consequences of the emergence of blockbuster drugs. One was that the ability to make so much money put a premium on drugs that could be marketed to the widest number of people rather than a premium on drugs that were effective for diseases that needed cures. By focussing on such drugs companies could most effectively realize the rewards that a global product patent regime offered. This reward system also put a premium on drugs for chronic conditions, so that there was a premium put on transforming where possible acute illnesses into chronic conditions.

It also means that if companies develop substance P antagonists, nicotine receptor antagonists or other novel drugs, they test these out in the big lifestyle indications first and if the drugs fail there they are jettisoned. A great deal of the development costs of modern drugs stems from trying desperately to demonstrate efficacy in conditions like pain or depression for a drug with minimal effects on pain or depression. It would have cost next to nothing to bring the SSRIs on the market for premature ejaculation, but vastly more to create the appearances of efficacy for depression. A drug that proved useful for melancholia today would be abandoned as unlikely to offer a return on investment. In contrast, process patents encouraged companies to bring a range of diverse drugs on to the market and make their money from a range of genuinely useful drugs.

The second feature was that in addition to marketing panaceas, as companies fortunes have come to depend on the fortunes of a single drug they have had incentives to conceal any hazards that might be linked to the drug. Since 1962 companies have increasingly found ways to shut down any reference to the hazards their drugs might pose, and the length of time to the discovery of the major hazards of a treatment has got steadily longer.

In contrast if several different companies can produce a drug that comes with a hazard the benefits of innovation will lie with the company that can find a way to manage rather than conceal the hazard.

The 1962 regulations were ostensibly about enhancing safety, as the 1906 and 1938 regulations had been. But in fact the motivational incentives pointed the opposite way. One of the important consequences of this is that safety in practice is more neglected now than it was in the 1950s. It almost appears to be assumed that if a drug is efficacious it cannot pose a safety risk. It is highly likely that if a new thalidomide were to come on the market that it might remain on the market for a decade or more as today the risks of prescription only drugs take over a decade to travel from first description to wider recognition.

There is a second notable aspect to the patent system that developed after 1962. In a free market, the patent system is recognized as a perversion, whereby the citizenry of a country for a limited period give a third party rewards beyond what the market would ordinarily support in return for some originality or utility that will benefit the country.

Before 1962 patent officers were a force to be reckoned with, but over the past 20 years this has changed. Companies have applied for and been granted patents on isomers or metabolites of already patented compounds, as with Lexapro, Pristiq, Nexium, Invega and others. They can for instance get patents by modifying the salt composition of an already existing compound – as with Depakote. They are able to take patents out on compounds that their own scientists describe as being as alike to already marketed compounds as two drops of water. The requirement for originality has de facto been abandoned.

The requirement for utility has also been abandoned. If the second drop of water currently being patented were patented for a novel and needed indication this might be acceptable but second drops of water are typically patented for the same conditions for which the first drop of water is already available – as in all the drugs listed above. Indeed in a number of cases, once a new compound is patented companies seem to be able to find safety issues with their initial compound sufficient to withdraw it from the market.

In the face of such laxity in the application of patent law, what happens next depends on the consumers of the product. If the consumers of these products cannot be easily fooled into buying a much more expensive on patent version of an identical cheaper off-patent product, patent laxity might not matter. But as we shall see the 1962 amendments have also created the perfect consumer, one who can be fooled into buying the most expensive bottled water in the shop.

The 1962 regulations created the perfect product. They have gone as close as possible to enabling companies to take product patents out on water. Reflecting this laxity, pharmaceutical companies, which once had scientific divisions and engaged in research, have outsourced most of these functions, and become close to the kind of pure marketing operations expected from a bottled water or patent medicines company, where the brand is all.