Patents are a necessary part of motivation to commercialize in high-CAPEX industries
Pharma companies take advantage of regulatory capture and abuse the IP system to eke out longer exclusivity periods than are typically allowed by law (e.g. making negligible changes and repatenting a drug); this has been a net drain on innovation
No cap, benchmark, or standard on biotech pricing has allowed companies to slowly ramp up pricing far beyond what is considered reasonable (e.g. the gradual ramp-up to a Million Dollar Pill)
Prizes and direct subsidies already exist for high-CAPEX projects and are also a crucial part of the system as it exists today. Almost all biopharma research starts out as state-funded work out of universities or NIH, until it reaches a point where it’s ready for trials and gets spun out into a business. The trials themselves are then often further subsidized. There’s a lot of work and money that has to go into making biotech viable just because of how little we understand about fundamental biology.
Patents are much more useful in high-CAPEX industries, but I wouldn’t call them necessary. There have been expensive capital investments without patent protection, even if they are not common.
Agree here.
’Reasonable” does a lot of work here. Economists usually define reasonable as price = marginal cost and the whole goal here is to raise price high above that level. But the point is well taken that there is more consternation over pharma pricing than is justified.
This is sort of an orthogonal point but I think the reliance of pharma on patents is an example of the “break your leg and give you a crutch” strategy that the government often takes. A huge part of the CAPEX that goes into pharma development is going through FDA approval. So if that process is not going to change, patents are essential for further pharma development. But in some lassiez-faire counterfactuals I think we could get more pharma development even without IP protection.
I think that prizes could replace the incentives of patents without most of the negative second order effects that I pointed out. Theoretically you could just match the monopoly profit with a subsidy, get the efficient quantity produced, and there are some mechanisms for dispersing the cash which avoid the rent dissipation.
There are a few issues to parse here --
Patents are a necessary part of motivation to commercialize in high-CAPEX industries
Pharma companies take advantage of regulatory capture and abuse the IP system to eke out longer exclusivity periods than are typically allowed by law (e.g. making negligible changes and repatenting a drug); this has been a net drain on innovation
No cap, benchmark, or standard on biotech pricing has allowed companies to slowly ramp up pricing far beyond what is considered reasonable (e.g. the gradual ramp-up to a Million Dollar Pill)
Prizes and direct subsidies already exist for high-CAPEX projects and are also a crucial part of the system as it exists today. Almost all biopharma research starts out as state-funded work out of universities or NIH, until it reaches a point where it’s ready for trials and gets spun out into a business. The trials themselves are then often further subsidized. There’s a lot of work and money that has to go into making biotech viable just because of how little we understand about fundamental biology.
Patents are much more useful in high-CAPEX industries, but I wouldn’t call them necessary. There have been expensive capital investments without patent protection, even if they are not common.
Agree here.
’Reasonable” does a lot of work here. Economists usually define reasonable as price = marginal cost and the whole goal here is to raise price high above that level. But the point is well taken that there is more consternation over pharma pricing than is justified.
This is sort of an orthogonal point but I think the reliance of pharma on patents is an example of the “break your leg and give you a crutch” strategy that the government often takes. A huge part of the CAPEX that goes into pharma development is going through FDA approval. So if that process is not going to change, patents are essential for further pharma development. But in some lassiez-faire counterfactuals I think we could get more pharma development even without IP protection.
I think that prizes could replace the incentives of patents without most of the negative second order effects that I pointed out. Theoretically you could just match the monopoly profit with a subsidy, get the efficient quantity produced, and there are some mechanisms for dispersing the cash which avoid the rent dissipation.