Since my response to Adam’s comments (about how drug development works, and whether compulsory licensing could have a detrimental effect on innovation) on Holly’s blog was getting a bit long, I’m posting here instead:
{Ahem}
Adam: Thank you for bringing up that perspective. The drug patent issue is indeed complex, and there is definitely a balance that needs to be struck between meeting vital public health needs and rewarding innovation. Patents do have an important role to play, and abolishing that form of incentive entirely (or over-using compulsory licensing rights) would be shortsighted and, as you note, perhaps even counterproductive to the public good.
That said, I have to contradict your model of how the pharmaceutical industry operates, and I disagree with the implication that compulsory licensing for essential drugs for illnesses such as AIDS will substantially impair the ability of pharmaceutical companies to remain profitable and innovate in the future.
Above all, I have to emphasize that whatever a “reasonable” balance of patent rights is in regards to essential medicines, CAFTA is decidedly UNreasonable (as I’ve pointed out earlier, the IP standards demanded in CAFTA are stricter even than those of the US).
Now, to address some myths about drug development:
Point 1: R&D is not pharma’s primary burden–The industry invests three times as much in advertising as in R&D:
“The drug industry’s top priority increasingly is advertising and marketing, more than R&D. Increases in drug industry advertising budgets have averaged almost 40 percent a year since the government relaxed rules on direct-to-consumer advertising in 1997. Moreover, the Fortune 500 drug companies dedicated 30 percent of their revenues to marketing and administration in the year 2000, and just 12 percent to R&D.” [source]
What’s more, pharma is hardly the most R&D intensive business. The figure given in this article is that the average software company R&D budget is 25 percent of revenue– twice the percentage of what pharma invests.
Point 2: A substantial portion of the risk/cost of developing new drugs is taken on by the federal government.
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