This week, presidential wannabe John Edwards revealed health-care ideas that would blast drug research and development in this country right back to the Stone Age. At the core of Edwards' plan is a scheme to strip patent protection from breakthrough drugs to get them more widely distributed with lower costs.
That whooshing noise you hear is the sound of all venture capital exiting the industry. Say goodbye to breakthrough drugs, because if Edwards has his way, there won't be any. Research budgets at pharma giants like Pfizer
Patents support innovation
Patents are critical in new drug development. They are the only financial incentive that makes drug research a viable undertaking. This is simple reality. Drug development is wicked expensive and incredibly risky. Companies cannot embark on such ventures without appropriate financial compensation. Patents are a key part of a system where drug companies are paid for the risks they take. This has led to the creation of important new medicines over the past few decades and has made the U.S. drug industry the best in the world.
Patents protect a drug from copycat knockoffs -- generics -- for a period of 20 years. Once the FDA approves a company's drug, no other company can sell that exact same compound while it is protected by its patents. Keep in mind that the clock is ticking away on the patent while the drug is undergoing clinical testing, so drug companies do not really get 20 years of exclusive marketing rights.
It is during this period of patent protection that a drug company recovers its costs of drug development from both drugs that successfully made it to market and those that failed along the way.
Instead of allowing drug companies to recover their R&D investment during the period of patent protected sales, Edwards proposes cash prizes for breakthrough drugs in exchange for the government hijacking a company's intellectual property. Unless those cash prizes have at least eight or nine zeros behind them, it's a raw deal. If I walk into your house and drop a hundred-dollar bill on the table -- but grab your car keys and drive away -- it's still theft. And that is exactly what Edwards' proposal is.
Edwards also talked about the need to get drugs on the market faster and cheaper. On that point we are in 100% agreement.
It generally takes seven to 10 years and hundreds of millions of dollars for a drug to move from its first clinical trial to getting on the market. This is because Congress has authorized the FDA to oversee drugs. The FDA requires extensive safety and effectiveness data before it will approve a product.
The FDA has seemingly raised its standards on what it wants to see to approve a drug, and things have gotten so bad that GlaxoSmithKline's
Most people would agree that having the FDA oversee drug safety and efficacy is a good thing, but this oversight is the primary factor determining the cost and time it takes to get a new drug on the market. Edwards' desire to get drugs on the market faster and cheaper would require a complete overhaul of FDA procedures. To my knowledge, he hasn't made any such proposal.
Foolish final thoughts
I am all for finding creative ways to make health care more affordable. But eliminating all incentives to create new drugs is not the solution. All that will do is squash innovation. If you know anyone with multiple sclerosis, cancer, Alzheimer's, or any number of devastating diseases, you'd agree with me when I say that there are too many diseases still left uncured.
I agree with Wyeth
For another take on Edwards' plan, see "John Edwards' Not-So-Bad Plan."
Fool analyst Charly Travers does not own shares of any company mentioned in this article. Pfizer is an Inside Value recommendation. GlaxoSmithKline has been tabbed by our Income Investor team. Millennium Pharmaceuticals is a Rule Breakers recommendation. The Fool's disclosure policy makes all sorts of sense.