R. Morris Coats

Bayou Business Review, p. 25, July 12, 1999

The President has finally come out with a plan to save Medicare, a plan that many have criticized as too costly, because it provides prescription coverage. Prescription drug coverage may be costly, but it may reduce other costs. For instance, medication to treat high blood pressure is probably less costly than treating a stroke caused by untreated high blood pressure. But the President's Medicare solution is not the topic for this column. Instead, I address a problem concerning prescription drugs that is currently being fought in the nation's capital: the length of time a patent protects drug developers from competition and the length of time the Food and Drug Administration (FDA) protects us from drug industry innovations.

The problem is illustrated in a June 26^th New Orleans Times-Picayune article by Bill Walsh, concerning drug-maker, Schering-Plough, and its allergy medication, Claritin. Schering-Plough applied for FDA approval for Claritin in 1986. After a great deal of regulatory delay and delays probably caused by Schering-Plough, as well, Claritin was finally approved for marketing in the U.S. seven years later. Patents only provide inventors seventeen years of protection from competition. In the case of Claritin, U.S. patent protection has already been extended for several years, but Schering-Plough is back in D.C., bearing gifts, requesting further extensions of its monopoly. (Obviously, there was delay from the time of Schering-Plough's patent approval and its FDA application.)

Consumer groups, such as Ralph Nader's Public Citizen, and makers of generic drugs are fighting the extension of the Claritin monopoly, arguing that any patent extension would keep competition from driving health-care costs down.

In economics classes I took in college, I learned that competition was good and monopoly was bad. Now I know that "it ain't necessarily so." The writers of our constitution specifically noted the importance of monopolies when they wrote that Congress has the power to make laws to provide protection from competition for inventors and authors in order to "promote the progress of science and other useful arts."

The protection from competition afforded by patents allows inventors to earn a sizable return on their very risky research and development venture. Without attractive returns on research and development investments, such investments would not take place. Then, technological progress would slow to a crawl. With the high cost of health care, lower-cost and less invasive treatments that pharmaceuticals provide should be encouraged. It may take a long time to get to really low-cost treatments--after patents, not patients, expire. Without patents, those low-cost methods will never be available at all. The longer patents protect inventors from competition, the higher the value of inventions, the more technology advances.

There are many questions to consider. Is seventeen years too long for a patent? Is it too short? Can the FDA approval process be sped up? Which is better, the current FDA standard that drugs must be shown to be "safe and effective" or a less restrictive standard that drugs only need to be shown to be safe? Can the threat of lawsuits, such as those against the makers of Redux and Phen/Fen and against Dow-Corning for its breast implants, sufficiently protect the American consumer so that protection by the FDA is unnecessary?

Because their Claritin monopoly is so valuable to Schering-Plough, the drug maker is spending millions of dollars with lobbyists and campaign contributions to ask Congress to extend their monopoly on Claritin. Consumer groups and generic drug companies are also spending huge sums to counter Schering-Plough's efforts. However, an extension for one product would be ill advised. Once Congress gives one company a special patent extension, every other pharmaceutical developer will be running to Washington to get their patent extended.

A better solution would be to start the life of all drug and medical device patents after the product is approved for marketing.

(To see Bill Walsh's Claritin patent story, as well as stories about the unionization of doctors, follow the links on Dr. Coats' web site at URL:http://www.geocities.com/WallStreet/Floor/5316/news/econnews.html).