Tuesday, June 21, 2005

The lives of about 50,000 human beings, mostly children, are cut short every day by avoidable poverty-related causes. These account for one third of all human deaths – 18 million every year. Hundreds of millions more suffer grievously from such avoidable medical conditions. The lives of even more are shattered by severe illnesses or premature deaths in their families. These medical problems strain the economies of many poor countries, thereby perpetuating their poverty which in turn contributes to the ill health of their populations.

These huge mortality and morbidity rates can be dramatically reduced through improved access to medical interventions (which include preventative measures and treatments) achieved by reforming the way we encourage and reward pharmaceutical innovations.

Under the present regime – the TRIPs (Trade-Related Aspects of Intellectual Property Rights) Agreement, as complemented by bilateral treaties – we grant inventors temporary monopolies on their inventions, typically for 20 years from the time of filing a patent application. With competitors barred from copying and selling any newly invented drug during this period, the inventor firm can sell it at the profit-maximising monopoly price far above its cost of production. This way, the inventor firm can recoup its research and overhead expenses, plus some of the cost of its other research efforts that failed to bear fruit.

This solution solves one market failure (undersupply of medical innovation in a free market). But its monopoly feature creates another: during the patent?s duration, the profit-maximising sale price of the new medical intervention is typically many times greater than the drug?s cost of production. This large differential is socially harmful by causing a ?deadweight loss?: It precludes mutually beneficial sales to patients who are willing and able to pay more than the cost of production but not the much higher monopoly price.
Story found here.