The Pharma Industry is Broken and Medication Should Be Directly Sold To States

The Problem

The pharmaceutical industry clearly is not working as it should be. Not only did an industry that makes people healthier, happier and helps them to live longer manage to become the least popular industry in the US (worse than the US government and a whole 12 percentage points worse than the oil and gas industry). They are also not developing and providing the products that would most benefit society and the world as a whole. While the world is in dire need of new antibiotics and treatments to many tropical diseases, nine out of ten top pharma companies spend more on marketing than on research and game the patent system to rig prices and stifle competition. One way in which they do this is called patent thicketing. Companies essentially extend patent protection by also patenting minor and obscure part of e.g. the production process. For a feel of what is going on, take the story of Humira, a human monoclonal antibody sold by Abbott Laboratories and by far the most profitable drug on the market. However, Abbott Laboratories didn’t even invent the drug. Research underlying Humira was initially funded by the British Government and to a large part conducted by academic researchers (one won the nobel prize in 2018). But it gets worse than just private companies profiting from public research money. Abbott Laboratories viciously defends its monopoly even though the patent for Humira actually expired in 2016 in the US and later also in the EU.  As Fortune writes in a very interesting article:

the company applied for and won 75 Humira patents in the three years before its initial patent expired in 2016. AbbVie CEO Richard Gonzalez has said the company now holds approximately 136 Humira patents.

a company may be able to file patents on obscure steps in the production and manufacturing process, or adjustments in dosing. And that’s precisely what AbbVie has done. AbbVie, in an emailed statement, says the U.S. Patent and Trademark Office (USPTO) has granted the company more than 30 patents on the ways in which the drug is administered; more than 25 patents on various formulations of the drug; more than 50 patents related to Humira’s manufacturing processes; and about 20 patents on the delivery devices that customers use to take the medicine. 

The strategy seems to be working. From the same article:

In a 2017 lawsuit, AbbVie cited 74 alleged instances of patent infringement against Boehringer Ingelheim and its Humira copycat Cyltezo. At first, Boehringer fought back in court. But, in May, it became the ninth company to settle patent litigation with AbbVie over a Humira biosimilar.

Sure, biological treatments like Humira are very different from classic chemical drugs and are much harder to reproduce. Patent thicketing, however, does not only happen with biologicals. And unfair competition is not the only thing that’s wrong with the pharma industry. The companies are simply not delivering the drugs we most need. The development of antibiotics is has almost stalled, partly as it just doesn’t pay enough to develop them (especially if antibiotics are kept as a reserve and never use). Research focuses on rich people’s diseases as it is not a sound business strategy to develop pills for poor people who cannot pay the high prices necessary to ensure good profits. Apart from the issues with the development of new medication, we also see problems with existing ones: Drug shortages of important medication are a real thing and for many companies it doesn’t pay out to provide cheap drugs, if those are not protected by copyright. In a similar spirit: companies usually do not invest in getting an existing medication approved for new usages, even though this can be very promising.

The solution

People have called the pharmaceutical corrupt and evil. But even if we only think the best about the pharmaceutical industry and finally recognize them for the congregation of angels and saints they most definitely are, one can hardly fail to notice that incentives are grossly misaligned. What is best for the pharma company isn’t necessarily best for the people and even the most well-intending executive cannot ignore the pressure exerted by shareholders and market forces. The health systems of most Western states operate in a weird limbo where prices are determined through a complicated interplay of private and public health actors. Why not go the full way and let states / the public decide prices completely. What would this mean? A pharmaceutical company produces a new drug and sells (or grants unlimited usage rights) to states. The states can then give the drugs to the people in need free of charge (or maybe for a small fee that prevents overuse). The state can produce the drug itself or license its production to other companies. This would lead to a much fairer system. In the US, companies can currently charge whatever they want for a treatment. Whether you get a better deal solely depends on negotiations between the manufacturer and your health care provider. The greater bargaining power of states would make sure pharmaceutical companies cannot demand moon prices by playing different actors against each other. It could also make innovation possible, attractive and well aligned with what we actually need: States could for example pre-commit to buying a new antibiotic that satisfies certain criteria for say one billion USD. They can thereby create incentives for innovation and grant security to investors even if the drug is treated as a reserve and rarely used. States or group of states could decide to offer special rewards for treatments against diseases that kill the poor who are not able to pay much for their medication. Governments could even agree to provide patents and usage rights as a form of development support to poorer nations or give them to the public domain. This could greatly reduce the dependence of poorer states and actors on big companies (While we’re at it: I strongly believe a similar system should be installed for managing crop patients and GMO). A government-focused system would also eliminate the need for the deeply problematic marketing practices of pharma companies.  Not only is the aggressive marketing wasting billions of Dollars a year, it may also be misleading and is by many understood as one of the factors that may have contributed to the current opioid crisis in the US. Sure, not all states will in all instances make perfect decisions. But at least incentives can be aligned. Even if one state makes mistakes, there is a multitude of states that can work together to ensure fair prices and functioning incentives. In any case: it can hardly be any worse than this. Will you take the red pill, or the blue one?

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