June 14, 1997

No Cure for Patents

Biotech Patents Distort and Discourage Innovation and Increase Costs for Dubious Drugs

It's not whether drug companies need patents to create new drugs - but whether society can survive monopoly control over medical research, according to research undertaken by RAFI (Rural Advancement Foundation International). The world's drug industry represents a health risk and cannot be entrusted with the task of medical research," Pat Mooney, executive director of RAFI insists. "It seems absurd that the European Parliament could develop a US-style patent law that would send Europan medical research down the same path taken in the United States," Hope Shand, RAFI's research director adds. "The US has an extremely unhealthy research environment and people are suffering as a result." There is no evidence, says RAFI, that the pharmaceutical industry requires intellectual property protection in order to develop biotechnology in health care. RAFI, a non-profit science advocacy organization with offices in both Ottawa, Canada and Pittsboro, North Carolina (USA), argues that the real innovators in modern medicine are traditional medical practitioners and that more than half of the world's major drugs are based upon indigenous knowledge. Pharmaceutical companies need monopoly patents - not for research where real costs are declining due to new technologies - but in order to secure the once-fragmented global drug market and to cover the huge cost of recent takeovers and mergers.

Most significantly, Pat Mooney of RAFI states that pharmaceutical industry research is "grossly inefficient and ineffective" and that "society's interests would be better served through public sector research investment." RAFI's findings are summarized below ...

1. Wrong Innovators: "Patents are rewarding BioPiracy - not medical innovators," Hope Shand argues. "The real innovative genius behind recent drug developments has not come from the pharmaceutical industry but from indigenous knowledge." This genius has been exploited by the industry and has often been the basis for predatory patents usurping local knowledge. According to a 1997 study edited by Francesca Grifo and Joshua Rosenthal, of the 150 most prescribed drugs in the United States in 1993, 57% were derived (or patterned ) from biological sources. Of the top 150, 23% were based on animals; 18% on plants; and 16% on microbial and marine diversity. The remaining 43% were synthetic compounds which may (or may not) have been inspired by traditional healers.

Medicinal plants continue to play a direct role in health even in a country like the United States. Often, however, industry attempts to dissuade people from using medicines from which they derive no monopoly profit. In 1989 in the United States, a country where one in three admits to using `alternative' medicines on occasion, there was one fatality caused by the ingestion of a plant. (The plant was ornamental, not medicinal.) In the same year and country, 414 (non-suicide) deaths were caused by the mistaken or inappropriate use of synthetic drugs. The great problem for traditional medicines is that they are difficult to patent and, therefore, sell too cheaply for the pharmaceutical industry. An extract of saw palmetto leaves, for example, every bit as effective as Proscar (finasteride) in treating enlargements of the prostate gland, sells at a third of the price and has significantly fewer side effects.

2. Ineffective Research: RAFI's Shand asserts that, "It would be difficult to invent a more wasteful and less productive drug research system." According to the US Office of Technology Assessment (OTA), American drug companies (in 1990 dollars) spent $65 million bringing a new drug to market in 1969, and $194 million in the 1980s. Merck now insists that the cost of a new drug ranges between $300-350 million. Is it worth it? Not according to researcher Anita Kunz. `Of the 348 drugs introduced by the 25 largest pharmaceutical companies between 1981 and 1988, only 12 (or 3 per cent) were deemed important therapeutic advances by the FDA [US Food and Drug Administration]... The vast majority (97 per cent) were seen as having little or no potential for advances in treatment.' For this, ill Americans paid out $67 billion in 1990. "You would have to be stupid to want to replicate such a system," says Pat Mooney of RAFI. "Drug companies have the gall to demand intellectual property protection in the absence of any intellectual capacity!"

Were most American drugs merely useless, we might have cause to complain, but not for alarm. As drug prices soared at four times the rate of inflation in the early 1990s, the US General Accounting Office (GAO) revealed that more than half of all new drugs (51 per cent) pose serious, even life-threatening, risks, even after FDA approval. By contrast, medical researchers are now acknowledging that traditional medicines seem to carry fewer side effects than their synthetic copycats.

3. Costs are Dropping - Not Rising: "Contrary to industry complaints," Mooney argues, " the real costs of bringing new drugs to market are declining." New chemical compounds are being discovered much more rapidly and at much less cost. Once new compounds are identified, companies have doubled the likelihood of them making it to market. Biotechnology and new laboratory technologies such as `combinatorial chemistry' have, according to The Economist, cut research costs substantially. Whereas, it used to take one lab technician an entire year to isolate fifty compounds at an average cost of $5,000 each, now the same worker "can synthesize one million molecules a year at a thousandth of the price." One of the world's top investment houses, Lehman Brothers, estimates that from one to four years can be shaved off the time needed to develop a new drug due to other new techniques such as high throughput computer screening and "bio-informatics". The combination of all these new techniques also means that the success rate of drugs that reach "final phase" clinical trials is doubling to 50%.

4. The Real Cost - Market Monopoly: "Companies need biotech patent monopolies in Europe in order to consolidate their control over medical research," says Hope Shand. The real cost of doing business in the pharmaceutical industry is the cost of developing a market monopoly. Until recently, the drug business was highly-fragmented with no single enterprise having a dominant position. This is changing. At enormous cost, the biggest companies are gobbling up the smaller firms and even buying one another. As a warning of things to come, Hoffmann-La Roche of Switzerland purchased Genentech, at that time the largest biotech concern in the world. Many analysts thought the purchase an anomaly. However, in the little more than two years that lapsed between the end of 1993 and early 1996. a period marked by the merger of Glaxo and Wellcome at one end and the uniting of Ciba-Geigy and Sandoz at the other, there were more than $80 billion in pharmaceutical industry takeovers including at least 16 worth in excess of a billion dollars each. With more mergers still in the offing, the once-fragmented global pharmaceutical market - with sales of $197 billion in 1995 - suddenly discovered that 43 percent of world sales are in the hands of ten TNEs. When RAFI first began monitoring the industry in the late seventies, the top 20 enterprises were thought to account for no more than one-fifth of global sales. Some investment analysts assume that within a decade, the top ten drug firms will control 75-90% of the market. As if to highlight their point, Bayer has recently bought MDI (a leading British biotech company) while Hoechst acquired Marion Merrell Dow for $7.1 billion and Rhone Poulenc (which had already swallowed Rorer) scooped up Fisons for another $2.75 billion. Smithkline Beecham, itself the product of a major merger a few years before, bought the Sterling Health subsidiary of Eastman Kodak. Then, Eli Lilly (a major drug, pesticides, and veterinary medicines player) bought marketing rights to Centocor's biotech products. When Sweden's Pharmacia and the USA's Upjohn merged, they created the world's tenth largest drug company - and destroyed 4000 jobs. Not to be outdone, Roche recently took over Boehringer Manheim - another multi-billion dollar deal. According to The Economist, between 1993 and 1996, the pharmaceutical industry's investment in collaborative ventures with biotech companies has soared from $1.4 to $2.8 billion and the number of linkages has rocketed from about 50 in 1993 to close to 200 in 1996.

If takeovers and collaborative linkages seem staggering in their dimensions, their tactical intent is of much greater concern. The pharmaceutical industry has a game plan. In the United States, Hope Shand of RAFI reports, "Managed Care companies" (including HMOs and private hospital chains) account for 50% of US patient care and are anticipated to increase their control to 90% around the turn of the century. Thus, when Merck acquired Medco Managed Care in 1993 (for $6.6 billion) the new entity's clientele rose from 41 million to 47 million by 1995. More to the profitable point, the number of prescriptions marketed to these patients during 1994 rose from 130 million to 170 million - a 14% increase in clientele and a 30% jump in prescriptions. Since then, other drug companies have opted for the same remedy. Eli Lilly prescribed itself PCS Health Systems, and SmithKline Beecham dosed up on Diversified Pharmaceutical Services. These represent three of the five largest Managed Care enterprises in the USA. Four of the top ten pharmaceutical companies also rank in the top ten in animal health care.

5. The Real Patent Cost: A 1997 study by Statistics Canada (Canadian Government) shows that many companies find patent litigation too expensive and are opting for "speed and secrecy". In a survey of 2000 Canadian companies, the study found that the companies prefer to get their product to market as quickly as possible as the best means of profiting from their research. Secondarily, the firms rely on trade secrecy rather than patents in order to stay ahead of the competition and keep legal costs low. According to a report in the Montreal Gazette, three US studies have shown the same preference in that country. Most significantly, one US study of 100 industrial enterprises showed that the companies - in almost every instance - would have undertaken the innovation with or without patent protection.

"There is no statistical evidence whatsoever to show that monopoly patents stimulate innovation," Pat Mooney concludes, "If you think it through, that's only logical. Monopolies destroy the incentive to develop new initiatives in any field. Hopefully, the European Union will learn from the patent law blunders of the United States and take another route to research."

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