TCS Daily

Incentives and Deadly Disease

By Pavel Kohout - November 23, 2005 12:00 AM

The threat of bird flu has stirred up an enormous amount of free publicity for Tamiflu, which is manufactured by the Swiss company Roche. Few people know, however, that Roche did not develop the drug; it only purchased the license. Tamiflu was developed by Gilead Sciences, an American company. This fact is not a matter of chance: The U.S. global hegemony in pharmaceutical research and development is comparable only to its edge in defense industries.  

In 2000, pharmaceutical companies invested $53.4 billion (or 19.5 percent of total sales) in R&D worldwide. Out of the total, $32.5 billion was invested by American companies. The U.K. was distant second with $6.4 billion, while Switzerland took the third place with $2.8 billion. During the period of 1995-2000, U.S. R&D expenditure increased by 103 percent, the highest rise in the world. Share of basic research expenditure was 36 percent, which was highest in the world, too.  

The U.S. pharmaceutical industry also produces some 60 percent of patents worldwide; this share has been growing over time.  

What are the reasons for the U.S. pharma supremacy? Simply put, the U.S. has the strongest companies. Some 90 percent of pharmaceutical R&D is done by private corporations. Government-run research facilities' contribution is next to nothing.  

What's more, by and large, research pays off for the companies. There is nothing wrong with that. Profit-seeking is the engine of human progress. Even the legendary Louis Pasteur did commercial research. He discovered his famous rabies vaccine only after his successful business with French wine and silkworm growers as well as chicken and cattle farmers allowed him to pursue such a non-profit activity. Without the support from the U.S. corporations, Florey and Chain would probably never have discovered  the clinically usable form of penicillin. And so on.  

Profitability of any industry falls when it becomes subject to price controls. This is the case of the pharma industry. Most governments, motivated by the well-intended struggle to help poor patients, put caps on drug prices. The most significant exception is the U.S. American citizens thus subsidize pharmaceutical progress for the rest of the world. But if significant price controls were introduced in the US, however, American R&D could fall by 30-60 percent, according to economists Thomas Abbott and John Vernon.  

Another condition for development is property laws. If there's a risk of patent rights expropriation, there would be fewer new drugs. Dr. Erwin Mansfield from University of Pennsylvania estimates that 65 percent of new drugs would not be developed if there were no adequate patent protection.  

Currently there are political attempts to expropriate Tamiflu patent rights. As attractive as it may sound to some defenders of the poor, this is the wrong way to go. If Tamiflu rights were confiscated now, it may happen that in case of another epidemic there would be no drug available at all. Even more chillingly, patent rights violations would impede development of drugs for cancer, cardiovascular diseases and other deadly diseases that are far more serious than any epidemic.

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