« The hum of status | Main | Schelling and Kubrick »
Should we confiscate Tamiflu property rights?
Tamiflu can combat avian flu, but the Swiss company Roche can't get us more Tamiflu for well over a year. They won't (can't?) set up a U.S. manufacturing plant for almost two years. (Face it, in a pinch neither the Swiss nor anyone else will export much Tamiflu, no matter what the previous agreement.) Roche holds a patent on Tamiflu but India will go ahead and produce a generic version; Taiwan has been making similar noises. What should we do? Here is one argument for producing generic tamiflu. Andrew Sullivan concurs.
I suggest a different approach. Let's offer Roche a large prize for speeding up the construction of the U.S. plant. This can include legal and regulatory waivers (Bush already has suggested this idea). We also make it clear upfront that if a pandemic comes, the U.S. government will purchase Tamiflu doses at a relatively high price. This latter round of payments can be made upfront, with a refund to the government if no pandemic arrives. Ex post, the government distributes the doses for free, with medical workers and key individuals in the supply chain (food, transportation, Typepad) given priority.
Note how avian flu differs from AIDS. AIDS is a relatively slow acting condition and the possibility of disease hangs around for decades. Avian flu, if it becomes a pandemic, will likely come and go in a few waves of a few months each, spread out over a year or two. That makes the case for abrogating property rights weaker. The key question is not price but whether you have a stockpile at all.
We should not focus on avian flu to the exclusion of other emergencies, including bioterrorism. Avian flu is just one possible pandemic of many. If we confiscate property rights this time around, there won't be a Tamiflu, or its equivalent, next time. We also need to stop taxing our vaccine-producing infrastructure through liability law.
Respecting Tamiflu property rights would supply an international public good as well. Many other countries will confiscate Tamiflu property rights. If the U.S. holds the line, we are subsidizing global R&D and doing a greater service for the world than our critics are willing to admit.
Addendum: The worthier-than-ever Daniel Drezner notes that no country is well prepared for avian flu. Comments, by the way, are open, please stick to the subject at hand.
Posted by Tyler Cowen on October 16, 2005 at 07:30 AM in Medicine | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c66b253ef00e550834fb18833
Listed below are links to weblogs that reference Should we confiscate Tamiflu property rights?:
» Avian Flu: How Anti-Libertarian Could It Get? from A Stitch in Haste
Here's a comment I posted on Dan Drezner's blog regarding the EU response to the confirmation that avian flu... [Read More]
Tracked on Oct 16, 2005 10:35:59 AM
» Is any country prepared for the avian flu? from Daniel W. Drezner
As the Bush administration continues to develop its pandemic plan, I'm beginning to wonder if any country is really prepared for a pandemic. The Financial Times reports that the EU isn't prepared for an avian flu pandemic. What's interesting is... [Read More]
Tracked on Oct 16, 2005 11:43:58 AM
» Catching my eye: morning A through Z from The Glittering Eye
Heres whats caught my eye this morning:
The controversy on the authenticity of the Zawahiri-Zarqawi letter continues. Point: Abu Aardvark (reserving judgment). Counter-point: Across the Bay (Juan Coles critique doesn̵... [Read More]
Tracked on Oct 16, 2005 1:22:19 PM
» Odds and ends from Galen's Log
Today will be a relaxing Sunday, as I'm getting ready for my hospitalist week. If you take a quick look at the blogroll, you'll see some new faces. Give them a look. While Hagekure was a cobbling together of a [Read More]
Tracked on Oct 16, 2005 2:18:00 PM
» Protect Roche's Property Rights from ProfessorBainbridge.com
Various folks (e.g., Andrew Sullivan) are making short-sighted arguments for violating Roche's patent on Tamiflu so as to stockpile the anti-viral drug against a possible avian flu pandemic. Tyler Cowen cogently explains why that's a really bad idea. M... [Read More]
Tracked on Oct 16, 2005 3:43:33 PM
» Avian Flu Update VI from Sierra Faith
Daniel Drezner asks "Is anyone ready?" and many ask should we stiff Roche?... [Read More]
Tracked on Oct 17, 2005 12:46:07 AM
» Just say no to (patents on) drugs (and the FDA) from www.productivityshock.com
Avian flu is coming. Some say disregard Roche's patent on the drug Tamiflu; Tyler Cowen says respect the patent to protect the future. I say we should think win-win: junking both patents and the FDA together will preserve incentives to innovate. [Read More]
Tracked on Oct 17, 2005 3:00:14 AM
» Tamiflu And Beyond from Barbarian Envoy
MRs Tyler Cowen cautions against allowing Indian, and possibly Taiwanese, firms from abandoning patent rights law and Roche, to speed up production of Tamiflu stocks. The worst-case scenario looks something like this. I suggest a different appro... [Read More]
Tracked on Oct 17, 2005 4:08:15 AM
» Tamiflu And Beyond from Simon World
MR's Tyler Cowen cautions against allowing Indian, and possibly Taiwanese, firms from abandoning patent rights law and Roche, to speed up production of Tamiflu stocks. The worst-case scenario looks something like this. I suggest a different approach. L... [Read More]
Tracked on Oct 17, 2005 4:12:34 AM
» Avian Flu, Patents and Research from Vaccines for Development
The blogosphere is buzzing with the idea that patents held by Roche might prevent widespread access to Tamiflu, a drug which is thought to be likely to be effective against Avian flu. Dean Baker asks: So why is the economics... [Read More]
Tracked on Oct 18, 2005 1:09:17 AM
» Avian Flu, Patents and Research from Vaccines for Development
The blogosphere is buzzing with the idea that patents held by Roche might prevent widespread access to Tamiflu, a drug which is thought to be likely to be effective against Avian flu. Dean Baker asks: So why is the economics... [Read More]
Tracked on Oct 18, 2005 2:48:33 PM
» H5N1 and Tamiflu Patent Confiscation from Better software. Better science. Better sex.
Im a little late on this, but Tyler Cowen of Marginal Revolution recently asked Should we confiscate Tamiflu property rights?. Tyler says no, and instead proposes to offer large prizes for speeding up Tamiflu production. This is not really any ... [Read More]
Tracked on Oct 22, 2005 2:17:35 PM
Comments
The question is a valid one, but not for the reasons given IMHO.
The reason people like me have purchased a personal stockpile of Tamiflu is because if the pandemic starts within the next year, the government will not be in any position to give it to us, for free or otherwise. Whether personal stockpiles are a good thing in the larger picture is far more debatable though. Resistance to Tamiflu is already being noted and the more it is used prior to a pandemic, the more likely that situation will grow.
The patent argument of course will look very different if a pandemic starts and Tamiflu is the only medical assistance available. The first person you see writhing in agony as their lungs are shredded by their own immune system, will likely change any view that patents are more important than people.
Posted by: iFlu.org at Oct 16, 2005 9:39:11 AM
Given distributional aspects I think that the case for scrapping property rights would be i.e.
higher in the AIDS case than in the Avian Flu case. One gets a little suspicious how the Western world
argues heavily regarding keeping the incentives straight (AIDS-case) and scrapping incentives (Tamiflu-case).
Posted by: Mikael at Oct 16, 2005 11:30:46 AM
Is there any danger of providing a huge economic incentive to start an avian flu pandemic to one of the companies that might have the resources to do so? One has to ascribe a completely amoral character to the actions of a company to worry about this, but on bad days I can think this darkly.
Posted by: kmeson at Oct 16, 2005 12:31:02 PM
I don't really see the property rights issue here. Yes, Roche holds a patent, but apparently they do not intend to make a sufficient supply available. Therefore, producing generic Tamiflu takes absolutely nothing tangible away from Roche. Why should they be compensated?
Think of this as a breach of contract. The US has a contract with Roche - the patent - which it chooses to violate. So Roche is entitled to claim damages. But where are the damages?
Nor does failure to compensate Roche eliminate the incentive to produce future Tamiflu's, so long as those hypothetical future medications are made available. Indeed, waiving requirements and paying huge sums to get Roche to speed up US production creates an incentive for manufacturers to replicate Roche's behavior, in hopes of being paid what can only be called blackmail.
Posted by: Bernard Yomtov at Oct 16, 2005 12:58:14 PM
It seems to me that Bernard Yomtov above has a point. Why not do both? Carrot and stick? Extend the offers suggested by Tyler to Roche but also ensure that Roche is aware that if they can't produce enough Tamiflu we'll find someone who can.
Posted by: Dave Schuler at Oct 16, 2005 1:21:44 PM
You can start producing generic Tamiflu without discouraging future invention so long as you pay royalties to Roche that are calibrated off the expected profit for Roche (after the cost of setting up production) in selling the Tamiflu itself.
In this situation I think it is very important that the antiviral makers reap large windfall profits. Cholesterol and erectile dysfunction drugs get an enormous amount of research attention because some of these compounds have made billions for their inventors. In the future I want the drug companies to salivate at the thought of producing a top-quality antiviral or vaccine and earning monster profits
Posted by: CS at Oct 16, 2005 1:23:57 PM
The active ingredient in Tamiflu was discovered in Chinese star anise which is used in Chinese cooking. Go make your own Tamiflu.
Posted by: Fred at Oct 16, 2005 2:01:39 PM
You can't view it as a breach of contract -- it's not a contract issue, it's property. But if you insist, it seems clear what the damages are. The damages are the profits they would have reaped when demand skyrocketed during a crisis. Increase the supply and price goes down, and with them profits. Tyler's point is that it's opportunities like this that will draw people into the market in the future.
Posted by: ryan peterson at Oct 16, 2005 2:03:08 PM
The damages are the profits they would have reaped when demand skyrocketed during a crisis.
Not if they lack the capacity to produce enough to cash in, which seems to be at least part of the problem.
It looks to me like what Roche wants is the profits that would accrue to them if they did have the capacity to meet a huge upsurge in demand, but without taking the risk of actually building that capacity. Isn't one of the "pro-gouging" arguments that the possibility of extraordinary profits creates an incentive to stock inventory, or maintain capacity, in excess of normal requirements? Roche hasn't done that.
Posted by: Bernard Yomtov at Oct 16, 2005 2:30:27 PM
Patents and Copyrights are absolutely, fundamentally not property. They are a limited monopoly granted by a state in order to induce the production of a quasipublic good. In the late 1800s, economists nearly universally thought that "reward" was better than "patent". Drugs and chemicals certainly present the best argument for patents (you don't usually come across a new drug/chem by 'luck', and the first mover advantage is small, so there really isn't much reason to produce without some reward/patent system).
Here's my idea: Have the WHO or G8 offer a fair price for the vaccine, and thereafter let it enter the public domain. If P = the economic profits Roche makes from selling it's entire stock of Tamiflu should a flu hit in the next couple years, and we've already agreed that they don't have the capacity to produce Q = amount demanded at that price, this is a clear efficiency gain. Further, it does nothing to destroy incentives (we don't have to force them to sell, though I'm not necessarily against it), and it's a win on equity grounds. All around good policy.
Posted by: cure at Oct 16, 2005 2:40:12 PM
"Let's offer Roche a large prize for speeding up the construction of the U.S. plant." Fine, but what if they still refuse, or try earnestly but screw up and can't deliver? The government may have little choice but to offer them just compensation for their patent and take it, just like real property.
"If we confiscate property rights this time around, there won't be a Tamiflu, or its equivalent, next time." That's a strong statement! Why does Tamiflu exist? I do not believe it is because Roche targeted a windfall from bird flu.
Tamiflu's effectiveness against bird flu is, as I understand it, a happy side effect of researching normal flu, not the result of aiming for a windfall from a bird flu outbreak. They'd surely never have bothered researching Tamiflu to treat bird flu strains alone. As a pharma exec, are you going to chase a miniscule chance of profiting from a global plague? I sure wouldn't.
Pharma is a high-variance industry even when targeting sure things like heart disease or erectile disfunction. Profit variance is astronomical for unlikely-but-devastating plagues. Just like we have the Greenspan put in the case of systemic financial meltdown, maybe we need a NIH call option for development of drugs against apparently unlikely global plagues.
Posted by: gundryggia at Oct 16, 2005 2:42:28 PM
The first paragraph of my 2:30 comment should have been italicized, as it was quoted from Ryan Peterson's immediately preceding comment.
My point, clearly, was that I think Peterson is mistaken.
Posted by: Bernard Yomtov at Oct 16, 2005 2:53:21 PM
There is a simple solution--apply international law as enshrined in the WTO. WTO permits comulsoy licensing in case of emergency. Avian flu is an emergency. There is no need to split hair over this. Canada did this during the anthrx scare.
Posted by: Asif Dowla at Oct 16, 2005 2:57:11 PM
Bernard,
No, reaping profits doesn't require they produce more -- they can also gain more profits by having price increase, which is certain to happen if demand spiked due to a pandemic. Quantity produced doesn't need to increase for profits to increase.
Posted by: ryan at Oct 16, 2005 3:02:05 PM
If economics were an honest profession, we would have hundreds of papers that compared the efficiency of patent financing of prescription drug research with other mechanisms (e.g. direct public financing, as with NIH, or prize funds). The basic arithmetic does not look good for patents. In the U.S., patent monopolies raise annual prescription drug expenditures by approximately $150 billion above what they would be if drugs were sold in a competitive market. For this $150 billion, the industry tells us that we get about $25 billion in research, roughly two-thirds of which goes to develop copycat drugs. In other words, we spend an additional $150 billion a year in higher drug prices to get about $9 billion in research on breakthrough drugs.
Where does the rest of the money go? The largest comnponent is the marketing campaigns that allow drug companies to maximize the value of their patent monopolies. While providing information is beneficial, providing misleading information and in some cases outright lies is not a social good. Of course, in some cases marketing includes various forms of kickbacks or bribes to doctors who prescribe certain drugs.
When it comes to trade tariffs on imported clothes or shoes, economists go nuts over intervention in a free market. But for some reason, economists don't consider patent monopolies on drugs, which can raise prices by several thousand percent above their competitive market price, a topic worth their time.
Posted by: Dean Baker at Oct 16, 2005 3:12:13 PM
Manual trackback:
http://armchaircapitalists.blogspot.com/2005/10/if-economics-were-honest-profession.html
Posted by: Isaac at Oct 16, 2005 5:15:22 PM
I won't comment on the economics but on the biology: Tamiflu is an antiviral, and a not very effective one at that. There are already some reports that viral isolates have been described that have resistance to it. This is to be expected, especially as southeast Asian countries have been dosing anything that clucks with the drug for the past two years.
It's more important to improve and expand vaccine production. Right now, influenza vaccines are grown on chicken eggs. This is a remarkeable archaic and inefficient process, made more so by the specifics of the two prototype H5N1 vaccines, which each demand 4x as much dose as typical flu vaccines, thus using even more eggs for even less protection. There are molecular techniques to grow up vaccine using bacteria and recombinant DNA -- but they are patented. Those should be nationalised, now.
Posted by: M-J Milloy at Oct 16, 2005 6:41:54 PM
"AIDS is a relatively slow acting condition and the possibility of disease hangs around for decades. Avian flu, if it becomes a pandemic, will likely come and go in a few waves of a few months each, spread out over a year or two. That makes the case for abrogating property rights weaker. The key question is not price but whether you have a stockpile at all."
This just does not follow. It is, in fact, an immaterial, and annoying, assertion in place of an argument.
The only reason there is talk of abrogating intellectual property rights is because of the high mortality of both diseases. The important figure here is 60% - that is, thus far, 60% of the people who get avian flu, die of it. The Spanish flu of 1918 infected about 25% of the population (it had a much lower fatality rate). Worst case, for the avian flu, try an infection rate of 25% and a mortality rate of 60%.
For this, you assert avian flu is a 'weaker case' than AIDS for abrogating intellectual property rights? Huh? What planet are you on?
This is right wing free-market fantasy. This is really Kiss Corporate Ass as the only American value. Disgusting.
Posted by: camille roy at Oct 16, 2005 6:42:27 PM
Pace Dean Baker above, economists have criticized the patent regime, e.g. Arnold Plant, Edith Penrose and Fritz Machlup, and Murray Rothbard. MIT Press published a collection a few years ago attacking them, mostly in the software area.
Abolish patents, now more than ever!
Posted by: Bill Stepp at Oct 16, 2005 7:17:09 PM
I would think that Roche could let the Indian company (which probably has fairly flexible production facilities) produce Tamiflu on a 1 year contract, while paying a nominal royalty. The Indian company would get direct R&D and manufacturing support from Roche, while Roche would get a relatively small amount of money, where before they would get zero. The public gets more Tamiflu. Sounds like a "win-win-win" to me :) (Although the Indian company might say that they can produce Tamiflu just fine without the support [and royalty payments, however small], thank you very much)
Posted by: Doug at Oct 16, 2005 10:28:49 PM
Tyler: "If we confiscate property rights this time around, there won't be a Tamiflu, or its equivalent, next time."
I suppose this would just be another manifestation of the same well-understood economic principle by which drug cartels simply give up on smuggling cocaine after one of their shipments is confiscated.
Posted by: Michael Robinson at Oct 16, 2005 10:43:11 PM
Although this is a bit tangential to the overall discussion here, I think we ought to tread very cautiously with limiting liability for drug manufacturers. This is precisely what they got (via Senator Frist) in the Homeland Security legislation, which resulted in the dismissal of several pending suits related to mercury induced neurological disorders. [Thimerosal is a mercury containing preservative in vaccinations.]
I worry anytime that a product manufacturer wants a liability shield. Not because I believe anyone who wants such protection has a nefarious reason to seek it. But rather because stripping away remedies for people who might potentially be harmed is, in itself, a dangerous proposition.
[For more info on thimerosal, see http://www.evidenceofharm.com]
Posted by: Justin at Oct 17, 2005 12:59:44 AM
Tamiflu can only lessen the symptoms (it's not a cure) and must be taken within 40hrs from onset of symptoms to be effective ... so looking to it as a panacea is pointless.
Some countries, like Australia, have fairly good government processes set up to manage the medical side of things, but nobody seems to have a handle on the economic preparations. That is, ameliorating the business collapses when people cant (or wont) go to work. Giving mortgage holidays for people who are prevented from earning income. Managing the collapse of "just in time" component distribution chains, etc.
If this pandemic is a big one (still a big IF) then it could presage the collapse of this phase of globalisation.
Posted by: Aleximus at Oct 17, 2005 1:56:28 AM
" If we confiscate property rights this time around, there won't be a Tamiflu, or its equivalent, next time."
I don't buy this. It's a once-per-century situation, roughly.
Companies operate on short time horizons. The odds of a similar emergency occuring within the life of a given patent is actually quite small.
That said, the optimal solution would probably be to give Roche the Hobson's choice of either losing the patent, or granting short-term licenses to produce the drug to any and all manufacturers, at a nominal fee ($.01 per dose, or less).
That'd allow production to ramp up very rapidly, using existing facilities around the world, rather than having to wait for Roche to build new facilities.
It wouldn't make economic sense for Roche to build a factory to produce large amounts of Tamiflu, when the extra capacity will probably only be needed temporarily. There'll be a huge increase in demand as nations stock up. Once stockpiles are adequate, demand will plummet back to normal levels. Use of the drug will skyrocket at some point, maybe, if the flu becomes a pandemic. After it burns itself out, use of the drug will return to normal levels.
It would make far more sense for Roche to hire outside companies to handle the boost in production using their existing facilities.
Posted by: Jon H at Oct 17, 2005 2:46:30 AM
ryan writes: "No, reaping profits doesn't require they produce more -- they can also gain more profits by having price increase, which is certain to happen if demand spiked due to a pandemic. Quantity produced doesn't need to increase for profits to increase."
Another way of expressing this is that Roche has found a way to monetize death. Given their self-limited production capacity, the more people die (especially in affluent Western countries) the more the living will want Tamiflu, and the more money Roche can charge.
Posted by: Jon H at Oct 17, 2005 2:53:50 AM
