Patent Monopolies and High Prices are Not Necessary for New Drugs

The New York Times had an interesting piece about how a medical researcher may have found a cure for Type 1 diabetes after three decades of research following his son being diagnosed with the illness. While the drug he developed may potentially be a great breakthrough, the piece included this discouraging comment:

“The company [Vertex, which bought up the rights to the drug] will not announce a price for its diabetes treatment until it is approved. But it is likely to be expensive. Like other companies, Vertex has enraged patients with high prices for drugs that are difficult and expensive to make.”

There are two important points here. First, the high prices are not the result of drugs being “difficult and expensive to make.” It is unlikely that the drug referred to in the linked piece, Orkambi, a treatment for cystic fibrosis, costs Vertex even one-tenth the $270,000 sale price. The price is due to the fact that the drug is ostensibly a cure for a debilitating disease, and Vertex owns a government-granted patent monopoly on it, and then is allowed to charge what it wants.

The other point is that we don’t  need to grant patent monopolies as a way to pay for expensive clinical trials, as this piece implies. The government can pay for the trials directly, as it just did in the case of Moderna’s Covid vaccine. (I describe a mechanism for doing this in chapter 5 of Rigged [it’ free].) High drug prices are a policy choice, not an inevitable outcome of the drug development process.

This first appeared on Dean Baker’s Beat the Press blog.

Dean Baker is the senior economist at the Center for Economic and Policy Research in Washington, DC.