Right in the Short Run

To teach everyone a lesson about the patent system, I thought I would go on a little internet adventure and try to figure out the history of some ubiquitous medicine. Everyone always talks about how patents make drugs expensive, but many of the generic drugs that we take for granted today were once protected by patents and therefore relatively expensive. Since it’s allergy season and my nose is stuffy, I decided to look at Benadryl.

Benadryl’s inventor goes by the name of George Rieveschl, and he made his discovery in the early 1940s:

Having graduated from the Ohio Mechanics Institute of Technology in 1933 as a commercial artist, Rieveschl - unable to find any work in the field - decided instead to enroll at the University of Cincinnati. A decade later, his laboratory research at UC produced the world’s first effective antihistamine - beta-dimethylaminoethylbenzhydryl ether hydrochloride.

The world knows it as Benadryl.

Rieveschl took his research to a pharmaceutical company, which purchased rights to it in exchange for bringing it to market and giving Rieveschl royalties:

When Rieveschl had several potential antispasmodics ready for outside testing, he approached the William Merrell Co., then a small pharmaceutical company in Reading. Merrell’s pharmacologists passed, saying they had enough work of their own to keep busy. Rieveschl then turned to several contacts at Parke, Davis & Co. in Detroit, where officials agreed to conduct the necessary tests. …

After toxicity tests proved Benadryl safe for humans, it was approved for prescription sale in 1946.

The patent for Benadryl was filed on April 18, 1944, and it expired about 20 years later, in 1964. At that point Parke, Davis & Co lost their exclusive right to production of the drug. In the 1980s the FDA made Benadryl available over the counter, as it remains to this day.

For about 20 years Parke, Davis, & Co reaped big profits from Benadryl, but it’s been over 40 years since the patent expired. Those 20 inefficient and unfair years have yielded 40 years of cheap, life-saving medication.

And Benadryl isn’t just an isolated example. Of course, all the other first generation antihistamines — you know, the stuff that supposedly treats your allergies but actually just helps you get to sleep — lack patent protection by now. In the past few years these drugs have been joined by a bunch of nonsedating antihistamines, like Claritin, Allegra, and soon Zyrtec. Readers with who suffer from hay fever will probably attest to the power of these drugs in improving their quality of life during springtime.

I’ll admit that Zyrtec was expensive last year. It was expensive for me, at least. Next year it will be cheaper, and as more generic manufacturers pop up, it will get even cheaper. As time goes on, the years of high prices will fade into the past, and most people will take it for granted that Zyrtec is an inexpensive way to fight their allergies without becoming a zombie.

The patent system has its problems, and it’s important to point them out (There are plenty of examples in the allergy industry, by the way — check out the difference between Claritin and Clarinex.) It’s also easy to ignore the benefits of the patent system. Unlike copyright, which has become effectively eternal, the patent term remains 20 years long, after which protection expires and the idea behind the formerly protected product falls into public ownership. When the product is a medical compound with lots of demand, the rush of generic manufacturers to produce it ensures that the public ultimately has access to it for cheap.

In fact, behind most of today’s common medicines is a patent success story. Benadryl is just the tip of the iceberg.

Dean Baker has something to say about Thailand’s decision to invalidate patents on certain AIDS and cancer drugs:

Newsweek has an article this week about Thailand’s decision to issue compulsory licenses for a number of important drugs. By eliminating patent monopolies on several AIDS drugs, as well as a few other medications, Thailand was able to reduce prices by close to two-thirds.

Naturally, the drug industry is furious over the possibility that their patent monopolies may not be protected. Newsweek apparently shares the drug industry’s anger, telling readers that “advocates of free trade see Thailand’s move as a big threat.”

Actually, any real advocate of free trade, almost by definition, would have to applaud Thailand’s action. After all, the Thai government is eliminating a government imposed monopoly and allowing drugs to sell at prices that are much closer to their free market level.

Dean is right that free trade and patents have nothing to do with each other. If anything, patents inhibit free trade by restricting the legal flow of generics. But so what? Advocates of free trade rarely advocate that everything should be traded freely. By Dean’s logic, free traders are hypocritical if they think hard drugs should be illegal. And that would make for a lot of hypocrites.

As for the utility of invalidating patents, there are problems with this method of making treatment cheaper. Holding the selection of drugs fixed, invalidating a drug’s patent enables a nation to produce the drug cheaply and treat its citizens better. But what about over time, when the potential profitability of drugs drives research decisions, and ultimately the selection of drugs available to treat diseases?

The expected profits of research come mainly from the developed world, where countries are rich enough to pay the high prices that pharma charges for its medications. Developing countries are usually too poor to pay very much, and even if they might be able to pay, they may invalidate patents to avoid pharma’s markups. (To pharma, the possibility that countries refuse to honor patents simply reduces expected profitability.)

I’m sure Dean would agree that some relatively inexpensive research could provide enormous benefits for the developing world. For example, research might find AIDS drugs that were better suited to environments with few doctors, or medication that did a better job of protecting children against malaria. But these drugs would have no market in the developed world. Pharma sees no profitability coming from developing world specific treatments, and so pharma doesn’t bother spending money on research that would alleviate developing world problems.

Dean would probably respond that the government should be doing this research. Actually, I agree with Dean that having the government doing R&D could be an avenue of getting cheap new drugs for the poor. But invalidating patents doesn’t help the government do research, and it hurts the long run usefulness of the private sector in producing life-saving medication.

(PGL at AngryBear has some commentary as well.)