Free Market Ozempic Will Make a Huge Difference to Tens of Millions of People

The New York Times had an interesting piece on the implications of Ozempic becoming available as a generic in India, China, and several other countries. The drop in price could eventually be close to 99 percent in these countries.

According to the piece, Ozempic sells for close to $300 for a month’s dosage in developing countries like China and India. It is expected to sell for around $15 for a month’s dosage when generics are introduced, and the price could eventually fall to around $3 when there is enough competition in the market.

The price differentials in the United States and other wealthy countries are even larger. People without insurance can pay as much as $1,000 for a month’s dosage, although discounts are available that can cut this price in half. The drug still has several more years of patent protection in the United States due to provisions that were put into law, due to the pharmaceutical industry’s lobbying, that extend protection when the FDA approval process takes a long time.

Drugs are Cheap: Patent Monopolies Make Them Expensive

The piece is useful for showing the dramatic difference it can make in people’s lives if drugs are available at generic prices. With rare exceptions, drugs are cheap to manufacture and distribute; however, they can end up being expensive because governments give drug companies patent monopolies or other forms of protection.

As the piece notes, there are hundreds of millions of people in these countries suffering from diabetes or obesity who could potentially be helped by Ozempic. Many are unable to get an insurer, or the government, to pay the patent-protected price and cannot afford to pay for it out-of-pocket. However, when it becomes available as a generic, it will be affordable to most of these people.

If Ozempic and other drugs were available as generics from the day they were approved, only the poorest people would be unable to afford them. And governments and aid agencies could realistically hope to be able to pick up the tab even for them.

There are Alternatives to Patent-Monopoly-Financed Research

The argument for patent monopolies is that they are necessary to provide incentives for research. But patents are just one way to finance research. There are other mechanisms, such as direct payments through the public sector, which is already done now.  The government spends more than $50 billion a year on biomedical research through the National Institutes of Health and other government agencies on biomedical research.

This figure would have to be tripled or even quadrupled to replace the research now supported through patent monopolies, but the United States would end up saving over $500 billion a year ($4,000 per household) by being able to buy all drugs at generic prices. This would far more than cover the cost of additional public spending on research.

There are good reasons for thinking that this sort of mechanism would make the research process more efficient. As a condition of getting the funding, the government could require that all results are posted on the web as soon as practical. That way, researchers all over the world would be able to quickly benefit from promising findings and warned off dead ends.

This would also reduce the amount of money wasted researching duplicative drugs. When there is a major breakthrough drug, like Ozempic, other companies rush in to try to develop comparable drugs that can get around the patent, to get a share of the breakthrough drug’s patent rents. It is desirable to have more than one drug to treat a condition or disease, but research money would usually be better spent developing cures for diseases where there is no effective treatment.

Perhaps most importantly, taking away patent monopolies eliminates the incentive for drug companies to lie about the safety and effectiveness of their drugs. The most extreme example of this was when drug companies misled doctors about the addictiveness of the new generation of opioids, contributing hugely to the opioid crisis. But this problem occurs all the time with drug companies constantly developing new schemes to push their drugs on doctors and patients, even when they may not be the best treatment.

We Need a Serious Debate on Financing Drug Development

A real discussion of the best mechanisms for financing drug development is long overdue. Much of the economics profession has actively impeded this sort of discussion by claiming that government-granted patent monopolies are the free market. This obviously absurd claim has been taken seriously in policy circles for many decades.

Maybe if we survive the Trump craziness we can finally have a serious discussion of this incredibly important issue. And maybe a post-Trump truth-telling will force economists, who go nuts over a 10 percent tariff, to acknowledge that a government-granted patent monopoly that raises prices by 10,000 percent is also an intervention in the market.

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

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