Multinational Monitor

APR 1997
Vol. 18 No. 4


The Campaign to Eliminate the Separation Between Banking and Commerce
by Jake Lewis

The Case for Preserving the Separation Between Banking and Commerce
by Jonathan Brown

Conquering Peru: Newmont's Yanacocha Mine
by Pratap Chatterjee

Taiwan Dumps on North Korea: State-Owned Taipower Schemes to Ship Nuclear Waste
by Jonathan Dushoff


The Political Economy of the Occupation of East Timor
an interview with
Jose Ramos-Horta



Behind the Lines

Don't Let This Merger Take Off

The Front
Slow Motion Bhopal - Indecent Proposal

Their Masters' Voice

Names In the News

Trade Watch

Book Notes


Letters to the Editor

The pharmaceutical industry view

Contrary to Multinational Monitor's latest diatribe against efforts to win respect for pharmaceutical patents in Argentina ["An Unhealthy Trade Policy," Multinational Monitor, January/February 1997], intellectual property protection is not a zero-sum game. Instead, respect for intellectual property is a win-win proposition. When the product is pharmaceuticals, the big winners are patients, who gain access to state-of-the-art medicines. Without adequate patent protection, there is no incentive for multinational concerns to set up shop in a country and there is no incentive for local innovation. Argentina is a perfect example of what happens when intellectual property protection is weak: Scientists leave to do research in countries that reward innovation, and local companies, instead of investing in R&D, merely copy drugs.

One thing that does not result from weak patent protection is cheap medicine. According to a 1990 study by an independent Latin American think tank, copied products in Argentina are, on average, priced higher than the originator's product. The beneficiaries of this system are not consumers but local pirate companies -- whose powerful lobby has successfully staved off legislation that would change the system. In countries that protect pharmaceutical patents, consumers can benefit from cheaper generic drugs after the originator's patent expires. In Argentina, there is no generic industry.

Brazil recently passed a law protecting pharmaceutical patents. During the long debate on the legislation, Brazil's ambassador to the United States developed a life-threatening infection. He told a Brazilian newspaper: "A new generation of antibiotics -- not available in Brazil for lack of an adequate patent law -- saved me. If I was not favorable to a patent law before, I am now." Since it became clear that Brazil would protect pharmaceutical patents, multinational pharmaceutical companies have announced hundreds of millions of dollars of investment in Brazil, creating jobs, stimulating the economy and making state-of-the-art medicines available to Brazil's people.

Argentina needs to bring its intellectual property protection up to the standards of its neighbors and of the World Trade Organization. Currently, it falls far below those standards in several important respects. The U.S. Trade Representative's action is designed to prod the government of Argentina to act in the long-term interests of its own people, not in the selfish, short-term interests of the local pharmaceutical patent pirates.

- Alan F. Holmer, President,
Pharmaceutical Research and Manufacturers of America
Washington, D.C.

No callousness here

In a recent editorial, ["An Unhealthy Trade Policy," Multinational Monitor, January/February 1997] you sharply criticized and imputed "cruelty and callousness" to U.S. policymakers who are more concerned with bringing certain new drugs to market than with destroying such incentives in the name of an imagined lowering of drug prices. The presenting symptom was maintaining the U.S. policy with respect to other countries whose pharmaceutical companies might wish to compete with certain such new drugs.

Let's look at the basic policy issue. Many drugs are neither patentable nor qualify for "orphan drug" or other protections for a variety of reasons, most notably because their R&D was partly governmental or government-funded. Yet to obtain FDA certification in order to market such drugs a company must expend very large sums. If these sums aren't recoverable in the market, companies will simply not expend those sums and the drugs will never become available to consumers.

If other firms could rely on the certification data filed by a first firm, they could theoretically market the same drug at far lower costs. They could easily price the first firm's version out of the market within a few weeks, making it difficult or impossible for the first firm to recover its costs. Facing such a policy, the original firm wouldn't market the drug in the first place and the second firm would have no first-firm certification data to rely on. In short, consumers would be denied the drug.

Current policy thus requires additional firms to duplicate the certification costs. If the market for the drug is large enough to support such second through nth firms' duplication, they will do so and the drug will be available from a number of sources. If not, it will at least be available from the first company as long as the FDA-imposed costs plus a fair rate of return are at least obtainable by one firm.

This is not a trade issue but one of stimulating the marketing of such new drugs, since the same considerations apply domestically as they do to U.S. drug companies wishing to market the drugs in question overseas or to foreign drug companies wishing to market such drugs in the United States. It is both wrong-headed and wrong to try to make it into a trade or "protectionist" issue.

Some might argue that the protection given in the above case produces excessive profits and inflates prices. Others might argue that a return is justified for the taxpayer's investment in the research.

Either issue can be dealt with within the boundaries of current policy. In the first case, the prohibition against relying on others' certification data could have a fixed time horizon from the date of filing. It would be an analytic task to determine the length of such a time horizon. On the one hand an infinite horizon could lead to unconscionable profits; on the other a zero horizon could lead to a dramatic drop in the availability of new drugs of the class being discussed. The answer must lie somewhere in between.

The issue of taxpayer cost recovery is similarly amenable to standard techniques. Here again there is a policy range to be examined. On the one hand, it could be argued that the existence of the drug on the market is the public payback. On the other it could be argued that full government cost recovery out of profits (or a lowering of price) after the company marketing the drug has recovered ITS costs should be the benefit target. Again, the answer must lie somewhere in between.

Finally, some have referred to economic studies showing new drugs to be very profitable. Such studies by and large do not address the case we're discussing. Most new drugs have built-in protections such as patents without which they wouldn't be thus profitable.

Therefore it seems clear that attacking policymakers for the current policy, much less imputing reprehensible motives to them, was an editorial error on your part.

- David Sternlight, Ph.D.
Los Angeles

Disclaimer: The writer is a professional economist in private consulting practice who has no connection with the pharmaceutical industry except as a customer.

Gambling: the house always wins, the public loses

Robert Weissman's recent article on gambling ["A Bad Bet," Multinational Monitor, November 1996] was quite insightful. Parallel conclusions were reached by experts in statements to the U.S. House of Representatives Committee on the Judiciary on September 29, 1995. Specifically, the Judiciary Committee was reminded that on September 21, 1994, the House Committee on Small Business had held a hearing on the socio-economic impacts of the trend towards increased legalized gambling activities. At the 1994 hearing, all of the experts criticized the impacts legalized gambling activities inflict upon social-welfare budgets, the criminal justice system, small businesses and the U.S. economic base. Among other conclusions presented, legalized gambling -- as a strategy for economic development -- was thoroughly discredited. Furthermore, it was reconfirmed that the proliferation of government-sponsored gambling activities makes "poor people poorer" and negates many of the socio-economic gains achieved by the civil rights movement of the 1960s.

The result of these hearings was the introduction of legislation establishing the National Gambling Impact and Study Commission to provide objective information to the U.S. public and the Congress. However, numerous newspapers have warned that the pro-gambling interests are trying to "stack" the Commission.

As was cautioned during the 1995 congressional hearing, legalized gambling interests are utilizing millions of dollars to misdirect the debate and cause government decision makers and the public to reach invalid conclusions. First, there is the incorrect assumption that legalized gambling activities are like other business activities. Instead, legalized gambling activities have large industry-specific negatives, resulting in a cumulative negative impact. Second, the industry's tendency to focus attention on specialized factors provides a distorted view of the localized economic positives, while ignoring the large business-economic costs to different regions of the United States. Third, the extraordinary amount of money which is legally used to overwhelm any opposition leads to unbalanced decision-making processes by elected officials, regulatory agencies and even the court system.

Almost by definition, there can be little compromise; that is, either the national economy is a non-gambling one, or it is a legalized gambling economy which will eventually "bust." Business-economic history indicates that the widespread legalization of gambling activities precipitates a classic "boom and bust" economic cycle.

This strategic economic threat to the United States is immediate and should be addressed quickly before newly developing constituencies in the legalized gambling industry become widespread enough to dictate economic policy. The ability of pro-gambling interests to "stack" the current National Commission validates these concerns.

- Professor John Warren Kindt
University of Illinois
Champaign, Illinois



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