StreetTalk: Send Lawyers, Guns, and Money: My Patent Has Hit The Fan

There's an old joke you may have heard before about a guy on his hands and knees crawling on the street.

A police officer comes up and asks, "Hey, pal, what do you think you're doing?"

The guy looks up and says, "I lost $20 on Mulberry Street and I'm looking for it."

The police officer scratches his head. "But this is Maple Street."

The guy responds, "I know. But the lighting is better on Maple Street."

When it comes to choosing between preventive health measures or treating our maladies with prescription drugs, American society is just like the guy on Maple Street. We are increasingly relying on prescription drugs to take the easy way out and look for health care solutions "where the lighting is better." Given that prevention is usually preferable to treatment, who cares if it's the wrong place?

Brian O'Connell

Don't get me wrong. I'm not saying that the prescription drugs coming out of the pharma pipeline aren't valuable and useful. They are — especially the ones that we need to treat trauma patients and other victims of injury or disease over which they have no control. I have many friends in the prescription drug industry who think they do a bang-up job in helping to alleviate pain and suffering.

That said, I think Americans are adapting way too easily to unhealthy lifestyles in full confidence that if they do get sick, there's a miracle pill a phone call away that will cure what ails them. It's a mindset that the biopharm industry, quite candidly, would be crazy not to accommodate.

I'll leave the cultural significance of our rising dependency on prescription drugs to the philosophers. As a Wall Street guy, I tend to look at the financial side of the picture. It paints a telling picture, one where the burgeoning trend of generic drugs is on a collision course with the various patent protection initiatives that protect brand name prescription drug developers from interlopers poaching on their turf. And the consumer is caught squarely in the middle.

How so?

First, our society's penchant for prescription drugs has torn a gaping hole in our collective wallets. According to the US government, overall US health spending has risen to $1.9 trillion in 2005. In 1960 we spent $27 billion on health care. Prescription drugs comprise about 10 percent of that total health care bill — about $190 billion, according to Uncle Sam. That's up from $17 billion in 1983.

Granted, inflation takes its toll as the years progress, but not by that much.

Consequently, Americans and consumers abroad are turning to cheaper prescription drug alternatives, specifically generic drugs, to save money. In general, generics are much less expensive than their brand-name counterparts. Take the anti-anxiety drug Klonopin. The price for 90 0.5 mg tablets is roughly $85 here in the US. But its generic counterpart clonazepam goes for about $20 for the same quantity and dosage. Generic drug advocates say their products are backed by the same standards FDA applies to brand-name drugs, which is true.

But that's not really the point I'm making here. The low cost of generic drugs relative to brand-name drugs has the biopharm sector up in arms and lobbying heavily for tougher worldwide patent rights laws. The industry is worried — and rightly so — that consumers here in the US and globally will reject pricey brand-name drugs and opt for low-cost generics instead.

In fact, that's already occurring. In May 2005, generic-drug companies in France were able to market their own versions of the anti-cholesterol drug Zocor for the first time. The generic drugs on the market already are 40 percent lower than the price Merck charges for its popular drug. Similar stories dot the US biopharm landscape.

So drug companies are fighting back in political and legal bourses all over the world. In India last March, parliament passed a bill that makes it illegal for domestic drug makers to make generic versions of patented drugs — a $5 billion business in that country.

In the US, high-powered industry lobbyists have strong-armed Congress into passing stronger patent protection laws. The Medicare Prescription Drug Act, passed in 2003, is a good example. Aside from a cash cow in the form of a $40 billion promise from Uncle Sam to buy Medicare drugs from brand-name companies, the law essentially eases federal regulation, strengthens patent protections, extends many drug industry patents, provides lucrative tax credits, and prohibits the US government from negotiating with pharmaceutical companies to buy prescription drugs for Medicare patients.

Yes, the prescription drug industry has an army of lobbyists — 3,000 of them, by some estimates — and they spend a great deal of money in Washington trying to influence Congress to pass tougher patent protection laws. What's bothersome to me is that this "arrangement" at closer scrutiny reveals that the US government's motives may not be as pure as the public is led to believe.

First, the 2003 Medicare law states that Uncle Sam must buy at least $40-billion worth of brand-name prescription drugs from big pharma companies starting in 2006. So right off the bat, the US government and the prescription drug industry are in business together. Then there's a juicy little law passed in 2003 called the Prescription Drug User Fee Act (PDUFA), which extends that existing $40-billion deal through 2007. The PDUFA authorizes FDA to continue collecting fees from the pharmaceutical industry to process drug approval applications. Those fees are not insignificant. Thus far in 2005, revenues from such fees have poured more than $284 million into FDA coffers. The agency used that money to hire about 1,200 new employees to further help the industry by cutting drug approval timelines and get prescription drugs out into the marketplace faster.

Sweet deal if you ask me, especially when FDA is ostensibly the watchdog group that, among other things, rules on key issues like patent protection timelines and generic drug approvals.

Illegal? No. Questionable? You tell me.

TRIPPED-UP

A global effort is currently underway to further solidify and lengthen pharmaceutical company prescription drug patents. The global agreement on intellectual property rights (TRIPS) calls for individual countries to roll out new drug patent protection laws over the next decade.

According to the London-based Panos Institute's "Patents, Pills and Public Health: Can TRIPS Deliver?", developing countries have until 2016 to introduce TRIPS-compliant laws regarding prescription drug patents. Panos claims that TRIPS emphasizes patent rights over public health, noting that the initiative could keep potentially life-saving drugs out of the hands of needy third-world people who simply can't afford them. Drugs that help treat HIV/AIDs, for example, would be placed under a virtual monopoly controlled by big pharmaceutical firms. Under TRIPS, a third-world country's ability to purchase less expensive generic drugs would be restricted. The organization cites a 2001 incident where a South African AIDS activist traveled to Thailand to buy several thousand generic anti-fungal pills patented by Pfizer, where he paid about 20 cents per pill. In South Africa, where patent protection laws are stricter, the same pill cost $13.

There's no doubt that brand-name biopharm companies have a right to protect their huge investments in the drugs they produce, and patents help them do that. There is also little doubt that strong patent laws aid drug companies by allowing them to be more innovative and spend more money on much-needed research and development.

But the industry might find roadblocks ahead in the form of angry consumers and health-rights activists who want cheaper prescription drugs, patents or no patents. The adverse publicity alone won't help the biopharm industry. Fortunately, compromises are being bandied about by health rights groups and the prescription drug industry. One idea afloat would allow third-world countries to pay less for prescription drugs than more affluent nations. Another is compulsory licensing, where a patent is overridden in return for a royalty payment to the patent-holder.

So hopefully, cooler heads will prevail.

Celebrity author and business/finance commentator for CNN and Fox News, Brian O'Connell has written for The Wall Street Journal and Newsweek, 79 Radcliffe Drive, Doylestown, PA 18901, 267.880.3144, fax 267.880.1939, brian.oco@verizon.net.