If you listen to the representatives of patent-intensive industries, particularly in the field of prescription drugs, you will be led to believe that these firms provide life-saving innovations (true) that require above-market prices to recoup the upfront R&D costs (somewhat true) made by the firms alone (patently false).
In fact, government and other non-corporate research laid the groundwork necessary, in the form of basic research, for these medications to come into being. Of the 210 new molecular entities approved by the FDA from 2010 to 2016, all of them were based on some form of NIH funding for research related to the “targets” of the drug.
Even in the case of the polio vaccine, grants were made by the Technical Committee of the National Foundation for Infantile Paralysis to various researchers, including Dr. Jonas Salk, who himself refused to patent the vaccine. “There was near unanimity within the organization that the public had already paid for the polio vaccine through their donations [to March of Dimes], and patenting it for profit would have represented double charging” wrote Brian Palmer in Slate.
To help end the excesses present in the prescription drug industry, Senators Rick Scott (R-FL) and Chris Van Hollen (D-MD) have introduced the “We Protect American Investment in Drugs Act” (We PAID Act). The bill’s main features would:
- Commission a study from the National Academy of Medicine to develop a framework to determine the reasonable price of a drug developed using federal funds, taking into consideration affordability, government investments in research, private R&D costs, and other market conditions;
- Establish a Drug Affordability and Access Committee, staffed by various government officials, industry and patient representatives, and researchers to apply the methodology developed by the Academy to newly patented drugs to determine a reasonable price;
- Remove from drug manufacturers who exceed the reasonable price restrictions their market exclusivity and ability to enter into licensing agreements;
- Establish a private cause of action against and fines for companies that fail to disclose the proper information, including government support for research; and
- Fine firms that exceed the reasonable price within the first year of launch by 50% by the based on the drug price and number of doses sold.
This bill offers an innovative and sensible response to the problem of runaway prescription drug prices. It establishes a clear condition for receiving a patent to manufacture or license a drug funded by taxpayers: to enjoy monopoly rights, you must not abuse monopoly power. And it regulates these monopolies in the way basic economic theory would lead us to regulate them by allowing the price necessary to bring an innovation into being while withholding windfall rents.