20 August 2017 Robert Hart
In the hit TV show Breaking Bad, high school chemistry teacher Walter White is driven to a life of crime in order to pay for his cancer treatment. While White is fictional, his situation—the inability to afford the medicine he needed to survive—is not, and millions around the world are unable to access the medication they need because the prices are just too high.
This is a problem in developed and developing countries alike. In America, millions of adults skip prescribed medications due to the cost. The same is true in Canada, whose universal public healthcare system does not extend to cover prescription drugs. There’s a similar situation in Europe, especially in poorer European countries. In less affluent countries around the world, it is even more dire; many pay out of pocket for drugs, and the hefty price tags can run many times the annual average income. A recent study conducted by officials at the World Health Organization, for instance, revealed that two widely used drugs for treating hepatitis C cost the equivalent of one or more years average earnings in 12 out of 30 countries analyzed. Millions are dying because they simply cannot afford the medicines needed to keep them alive.
But why are drugs so prohibitively expensive? Most people think this is because of the cost to produce the medicine or to do the research needed to bring drugs to market. Perhaps surprisingly, it is not the cost of manufacture; many drugs can be made relatively cheaply. In fact, drugs often retail at tens or hundreds of times what it costs to make them. One drug for treating hepatitis C, for example, costs under $150 to make and retails at $84,000 for a 12 week course. Another drug, used to treat cancer, cost just $143 to manufacture, and was sold for $120,000 for one year’s supply. Why? The main reason: patents.
A patent is a monopoly on the information found inside a drug, giving the holder the exclusive right to use that information. They are awarded by governments to the creator of a new drug, granting the holder the sole right to determine who may use, produce and sell the product for a certain period of time. Those who apply for patents don’t even have to have created all the work in the product, just the latest link in the chain. It’s this monopoly that keeps prices high, and it is often justified by the extraordinary costs involved in bringing a new drug to market, which a recent—and somewhat questionable—estimate places at $2.6 billion.
Companies have a number of ways of ensuring they can keep their monopoly for the longest period of time possible to maintain the protection they have around maximized prices, preventing generics manufacturers—who do not shoulder research and development costs and can afford to sell drugs at a much lower price—from driving prices down. This usually involves tweaking existing compounds in the drugs slightly, developing a new mode of delivery or combining two patented drugs in one pill. The practice, called evergreening, is controversial, and is often timed to maximise the length of the monopoly. “Many of these involve minor modification or reformulation of drugs that do not necessarily provide additional benefit for patients,” according to researchers at St George’s, University of London, writing in the British Medical Journal.
Without patents, prices almost always fall. We see this when patents expire; generic, off-brand drugs cost a fraction of their branded counterparts. The competition involved here means the prices needed to sell the drug fall close to the costs of manufacture. We also see this in cases where patent monopolies are not enforced or awarded; India did not award patents on drugs until 2005, allowing generic manufacturers to produce lifesaving drugs at affordable prices. One leukemia drug, for instance, which cost $70,000 in the US, cost just $2,500 in India. Until then, the country was a major source of affordable medicine worldwide.
It’s often claimed patents are a necessary driver of innovation. Without them, there would be little incentive for pharmaceutical companies to make the massive investments required to bring a new drug to market. But most of these high prices does not get funneled back into research and development; many companies actually spend far more on advertising than they do on developing new products. Moreover, many companies take out patents on products where they haven’t even paid for the bulk of the research. This was the case with medicine used to treat HIV.
But patents are not the only way, nor are they the most appropriate way to develop new medicines. Monopolies keep the prices of drugs high, pricing millions out of the market, while simultaneously failing to reward—and therefore incentivize—those who have done the bulk of the research, typically governments, public universities and similar groups. They also divert research away from less-profitable areas, such as infectious diseases and those afflicting mainly poorer people, to more profitable areas, like chronic diseases afflicting richer people. Most drug companies, for instance, focus on developing drugs for chronic issues like heart disease, cancer and diabetes, rather than urgently needed antibiotics to deal with the growing spread of resistance. In 2008 only five major pharmaceutical companies still had antibiotics programmes. One thing is clear: we need a new model for medical innovation. A model that works for everyone.