TCS Daily

Without Bayer, We're Bare to Bioterror

By James K. Glassman - October 22, 2001 12:00 AM

If you have been exposed to Anthrax, what's it worth to save your life?

How about $4.31 a pill?

That's what lists as the retail price of Cipro, an antibiotic developed and patented by Bayer, AG, the German-based drug and chemical company. In the midst of all the fear about anthrax, we should be exceedingly thankful that this disease, usually fatal if untreated, can be cured at a reasonable price.

And Cipro just got cheaper. In response to public fears over anthrax, whose bacterial spores have been spread by terrorists through the mail and have killed one person and sickened about a half-dozen others, Bayer is tripling production- from 20 million tablets a month to 200 million tablets over the next three months - and is selling pills to the government at just $1.83 each, or roughly $220 for the recommended two-a-day dosage for two months. Less than what most workers must pay for parking in central cities.

But a New York Senator, Democrat Charles Schumer, isn't satisfied. He wants to throw out Bayer's patent. He has proposed that the government allow three drug makers - in the U.S., Israel and India - to make Cipro knock-offs. Schumer says that these so-called "generic" manufacturers have told him they can make 50 million to 60 million pills per month, and that, "as the drug's sole patent holder, Bayer charges approximately 50 percent more than what the generic version is likely to cost."

Joining Schumer's crusade is the usual anti-technology crowd. Ralph Nader's sidekick, Jamie Love of the Consumer Project on Technology, which has pushed for eliminating patent protections on AIDS drugs, has attacked Health and Human Services Secretary Tommy Thompson as lacking "a little bit of guts" in not going along with Schumer's attempt to confiscate Bayer's property.

Instead, Love and Schumer want the U.S. to follow the lead of Canada, which last week invoked a seldom-used power to override Bayer's patent, ordering a million tablets of a generic copy of Cipro from another company, Apotex. Americans, however, have more respect for property rights - and more understanding of why a company like Bayer, which is based in Germany but has thousands of U.S. employees and shareholders, would make a huge investment in developing a drug like Cipro in the first place. Even more outrageous, columnist Robert Kuttner accuses the entire research pharmaceutical industry of "war profiteering." Why? Because a drug industry group convened a task force of chief executives to address extra production needs in case of bioterrorism, but the group didn't include generic drug makers. In fact, it's hard to think of an industry that has helped Americans feel safer about combating terrorist threats than the large drug companies.

But let's take a step back from the hysteria. The Food and Drug Administration (FDA) approved Cipro in 1987 after extensive testing. It is a powerful antibiotic that successfully treats urinary tract infections, acute sinusitis, typhoid fever, infectious diarrhea and other diseases besides anthrax. More than 250 million patients have taken Cipro in doses for between three and 60 days. Bayer, a diversified chemical and drug company (it also makes Alka-Seltzer and One-a-Day vitamins), has been struggling over the past year, but its Cipro patent lasts through 2003.

The reason that patent protection - that is, short-term exclusive property rights - is extended to pharmaceuticals is to encourage companies like Bayer to make the huge investment necessary to discover and develop them. Without patent protection, firms would have little incentive to find new drugs. Imagine if there were no companies like Bayer, Merck and Pfizer; instead, only generic companies, which produce drugs discovered by others when the patents run out. How many new drugs like Cipro would we have?

Not only are property rights useful in a free-market economy, they have the force of basic morality behind them. What would Kuttner think if "generic publishers" were free to rip off the books he writes (the latest, ironically, is called Everything for Sale: The Virtues and Limits of Markets) with impunity?

Last year, Cipro was approved specifically for treating "inhalation anthrax," the deadly form of the disease that killed an editor in Florida. But two other broad-spectrum antibiotics, penicillin and doxycycline, "were also shown to be as effective as Cipro in a 1997 Pentagon study of anthrax in rhesus monkeys," according to The New York Times. (By the way, lists penicillin prices as low as 10 cents for a 250 mg. tablet.)

The website of the Centers for Disease Control ( says that the FDA has also approved penicillin and doxycycline for treating anthrax, but, as the Times put it Sunday, "Cipro ended the week as it started - the gold standard, rightly or wrongly, scientifically or psychologically - against both inhalation anthrax and the less serious cutaneous anthrax."

And for good reason. As Tara Parker-Pope wrote Friday in the Health Journal column of The Wall Street Journal, penicillin and doxycycline "aren't under patent, and their makers have no financial incentive to do the additional tests required by the FDA to be able to market their brands as anthrax fighters."

Schumer, Kuttner, Love and the others should pay close attention: No patent protection, no incentive to go through the expensive FDA approval process. But it is patent protection that these crusaders want to take away.

Certainly, if there were a real national emergency in which the general population was threatened with a massive anthrax assault, then every company capable of producing the drug - not to mention penicillin and other antibiotics - should be allowed to do so. But we are far from that stage. At any rate, as Parker-Pope writes, "The real issue, say experts, is not the quantity of antibiotics available, but whether the government can distribute them on a large scale."

Schumer and other politicians - as ideological war profiteers - seem intent on using the current crisis to wage their own war against the pharmaceutical companies that do the bulk of the drug research. Merck, for example, has spent $6 billion on R&D in the past three years alone. As Larry Summers noted in a speech when he was Bill Clinton's treasury secretary, "The only incentive to produce anything [in an information-based economy] is possession of temporary monopoly power - because without that power the price will be bid down to the marginal cost, and the high initial fixed costs cannot be recouped."

The initial fixed costs to deliver a drug to the market on average amount to nearly $1 billion. That includes $500 million to $600 million to go through all the regulatory hurdles for safety and efficacy, and another $400 million to get doctors to look at it and patients to consider its use.

Indeed, most drugs - even life-saving ones - never recover the pharmaceutical company's costs, which is why the Congressional Budget Office reported in 1998 that a drug company "must discover and market a highly profitable drug from time to time" to stay in business. It is precisely these profits, plowed back into R&D and capital expenditures (another $6 billion-plus in the past three years), that lead to new drug discoveries.

That isn't the case with money that the government would pay for generics. You don't hear a lot about drug inventions in India, one of the places from which Schumer would fill the nation's medicine cabinet for anthrax. And for good reason. Generic firms in Asia and elsewhere simply piggyback on the research, development, testing and approvals of the research pharmaceutical companies. Without Bayer's investment in Cipro, there would be nothing for them to copy.

The world's medicine cabinets, in fact, would be bare - and the population would be bare to bioterrorism.

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