Study: Mismarketing Of Patented Drugs Has Cost Society At Least $380 Billion

Techdirt|Glyn Moody

Here on Techdirt we've written many times about the problematic nature of drug patents. They are harmful both directly, in terms of the price distortions they cause and seek to spread to new markets, and indirectly, through the lobbying that the pharma industry deploys to strengthen and extend them, notably in trade agreements such as TPP and TAFTA/TTIP.
The standard justification for these patents is that they are needed to provide incentives for costly research and development of new drugs, something that Techdirt has been questioning for many years. A fascinating new paper entitled "Patent Monopolies and the Costs of Mismarketing Drugs" (pdf), by Ravi Katari and Dean Baker at the Center for Economic and Policy Research, explores yet another problem with pharma patents:

in the case of prescription drugs, there are also major costs associated with the enormous asymmetry between the knowledge available to drug companies and the knowledge available to patients and their doctors. As a result of this asymmetry of knowledge, drug companies will often be in a situation to earn large patent rents by concealing information that show their drugs are less effective than they claimed or possibly even harmful.

One way in which drug companies take advantage of this asymmetry is with "off-label" promotion of their drugs. An off-label use of a drug is one which has not been approved by the FDA. While doctors are free to prescribe drugs for off-label uses, drug companies are prohibited from promoting their drugs for off-label uses. If they want to get a drug approved for additional uses then they have to clear a path by seeking FDA approval. However, they routinely avoid this independent assessment by finding ways to promote their drugs for unapproved uses. Promotion of drugs for off-label uses is harmful to the public because it diminishes drug safety regulation, discourages companies from conducting or revealing internal safety studies, and incentivizes them to seek FDA approval for narrow "label use" that is easier to push through the approval process.

The bulk of the paper is concerned with quantifying those costs by looking at five high-profile cases of mismarketing. Here's the final result:

The cumulative costs associated with the increased morbidity and mortality associated with these drugs was $382.4 billion over the 14-year period from 1994–2008. This comes to just over $27 billion a year, an amount that is comparable to what the pharmaceutical industry claims to have been spending on research at the time.

As the paper's authors emphasize, this is only a rough figure, and is likely to underestimate the total negative consequences of this kind of rent-seeking behavior, since it is based on only a small subset of drugs, and uses conservative estimates for key quantities. More important than the specific figure are the policy implications. For example, the deliberate mismarketing is only possible because data is kept secret:

If, for example, this research was all in the public domain and carried through by researchers who had no direct financial interest in the sales of a drug, it is unlikely that they would go to elaborate lengths to misrepresent or conceal research findings, or that they would be successful if they tried. In other words, the costs documented here are the result of the incentives provided by patent monopolies in the same way that the research itself is motivated by patent monopolies.

At the very least, that's an argument for requiring that all research data and clinical trial information should be made freely available for others to analyze. The paper also points out that there are implications for TPP and TAFTA/TTIP:

One of the major goals of the United States in these and other trade pacts currently being negotiated is to strengthen patent and related protections for prescription drugs. The justification is that increased patent rents will provide a greater incentive to the pharmaceutical industry, leading to more innovation.

But as the present study shows, strengthening those protections is likely to encourage more rent-seeking behavior, increased mismarketing, and thus unnecessary deaths and greater costs to society -- hardly something to promote through trade agreements. Finally, the new research adds further weight to the argument that we need to find better ways of funding research into new drugs:

The fact that incentives from patent rents lead firms to promote drugs in ways that impose large costs on patients and society should raise additional questions about the desirability of patent protection as a mechanism for financing research. Other mechanisms for financing research have been proposed, such as a prize system or direct public funding. Of course the U.S. government already spends $30.9 billion annually funding biomedical research through grants administered by the National Institutes of Health, so direct public funding is already an integral part of the drug development process. The proposal is to expand this funding and have NIH’s mission extend to the development and testing of drugs. By having all research in the public domain and taking away the patent rents associated with marketed drugs, direct funding would both remove the incentive and hugely lessen the ability to misrepresent research in order to promote drugs for uses that may not be appropriate.

When so many lives and so much money are at stake, it's surely time to look at this idea more closely.