|
|
 |
 |
May 2004 The Value of Health vs. The Cost of MedicineCongress struck the proper balance in regulating competition between developers of new treatments and manufacturers of older medicines, argues Pfizer CEO.by Hank McKinnell, MBA '67/PhD '69 Recently, Stanford Business published an article summarizing a paper, "The Gaming of Pharmaceutical Patents," by Professor Jeremy Bulow. I have great respect for Professor Bulow's work, but I regret the emphasis of this article on "patent gaming" and the near singular focus, here and in the public debate generally, on the cost of medicines. The far more critical societal concerns would be the cost of disease and the value of health. Economists at the University of Chicago estimate that Americans could gain $10 trillion in economic benefits from a 10 percent reduction in death rates from cancer and cardiovascular disease. Research-focused pharmaceutical companies are our best hope for providing the new treatments that will reduce death rates from these and other diseases. A Federal Trade Commission (FTC) study of the results of the Hatch-Waxman Act of 1984 serves as the basis for Professor Bulow's analysis. The law was intended to regulate pharmaceutical companies to maximize consumer welfare. While Bulow points to a few examples of what he sees as manipulation of the legal details, the overall conclusion of the study indicates that the law has been one of the most successful commercial regulations ever. The study finds that of the more than 8,000 applications to sell generics that came before the Food and Drug Administration from 1984 to 2001, 94 percent were not subject to challenge by patent holders. Of those that were challenged, only a small fraction raised concerns with the FTC. Furthermore, when the act was passed in 1984, only 19 percent of all prescriptions in this country were filled with generic medicines. Today, generics account for 60 percent. Hatch-Waxman has transformed the medicines marketplace. Virtually every innovative pharmaceutical company can expect to face vigorous generic competition upon the expiration of its patent. This was not the case before passage of the act. In the United States today, unlike in many other developed countries, when generic entry follows patent expiration, sales of the branded product experience deep erosion almost immediately and competition among generics drives prices down aggressively. But the price of medicines isn't the only value that matters in fighting illness. The role that new medicines play in increasing good health is critical, too. Consumers benefit from lower product prices, but they also benefit from the existence of those products in the first place. Ignoring the gains in consumer well-being from the discovery of new medicines and focusing solely on cost is to fight the battle on price and lose the war on disease and continued innovation. Clearly, this is the wrong policy prescription. While innovator companies often spend a large fraction of a new product's patent life conducting safety and efficacy research prior to gaining marketing approval, generic companies are required to do no such research. The act grants a 180-day period of market exclusivity to the first generic manufacturer to successfully challenge the patent on a medicine, a powerful financial incentive. Increasingly, generic companies are filing drug approval applications well before patent expiration in a quest to achieve the exclusivity. Today, virtually every one of Pfizer's basic composition-of-matter patents that cover our innovative products is under challenge by a generic company seeking to gain the exclusivity. Litigation is a central business strategy for many generic companies, with such companies hoping to hit the jackpot with a court ruling invalidating a patent fairly earned. To be sure, there is a need for a healthy generics industry. By the same token, there is also a need for a healthy research-based industry. From where else will we derive most new medicines? This is not an us-versus-them situation. Generics are by definition older drugs, and in those situations where an older therapy is appropriate, they fill an important role. However, there is no such thing as a "generic breakthrough" medicine. Only innovator companies will provide the new cures and treatments that will address the staggering cost of untreated disease here and abroad. Interestingly, Professor Bulow makes the point that, "with the possible exception of computers, the pharmaceutical industry has contributed more to human welfare in the past 50 years than any other." That's a great point. It is even more accurate if we drop the first six words. Hank McKinnell is chairman and CEO of Pfizer Inc. He received MBA and PhD degrees from the School in 1969 and is a member of the School's Advisory Council. |
|
|
|
 |
|
|
|
Counterpoint:
The Value of Health vs. The Cost of Medicine
