Issues & Insights

‘Profit’ Is Not A Four-Letter Word

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Profit motive and patent protection are the very keys to innovation. Without them, millions of doses of COVID-19 vaccines developed in record time would most certainly not be en route to hospitals and providers in all 50 states as we write. Still, some just will not accept this reality.

If we were writing this article for a medical journal, we would begin by saying that we were identifying a previously undescribed and destructive outbreak of what we term Brain Atrophy Disease (BAD), an invasive condition that impairs the ability to reason. We would note the involvement of the optic nerve, blinding the victim to anything he or she does not want to see. The cause is unknown, but a history of indoctrination and ideological absolutism appear to be contributing factors to its progression. 

An exemplary case is embodied in this radical assertion by Rob Weissman, president of Public Citizen:

Even if the government hadn’t paid for the [Pfizer/BioNTech COVID-19] vaccine, even if the inventions weren’t the product of public investment over many years, in light of the pandemic, we should still say we cannot tolerate patent monopolies conferring on corporations the power to control who can make the vaccine and how it’s going to be supplied.

According to his BAD logic, the profit motive and patent protection of intellectual property are inappropriate if beneficence is involved. According to the same logic, Apple should provide the world with iPhones at cost (or free, and have governments subsidize them), because smart phones have enabled billions of people to conduct the business of commerce and of everyday life, raising standards of living and undoubtedly saving millions of lives. 

And why not expand Weissman’s grand gesture so that companies that make equipment to generate power, process drinking water, and aid farming would also be denied intellectual property protection and, by extension, profits?

Another, similar example of BAD reasoning comes from Jason Cone, the executive director of Doctors Without Borders USA, who accuses corporations of “free-riding” on publicly funded research: “Companies receive substantial publicly funded support from the government. A recent study found that all 210 drugs approved in the U.S. between 2010 and 2016 benefitted from publicly funded research, either directly or indirectly.” If such research were the pivotal economic factor, it would not require hundreds of millions of additional dollars even to attempt to bring a drug to market. In short, an expensive “free” ride.

A primary function of certain federal agencies is to support pre-commercial research without any consideration of practical application, let alone profit. This is not a bug, it’s a feature. Synergies from decades of federally funded basic research in the fields of microbiology, enzymology, and methods to purify molecules gave rise to the genetic engineering technologies that are used to make many of today’s best-selling pharmaceuticals (including all the leading COVID-19 vaccine candidates) and the vast majority of some of the U.S.’ (and other countries’) important crops, such as corn, cotton, canola, soybeans, and sugarbeets. 

The BAD logic, such as it is, presents obvious problems, which are very much applicable to the current COVID-19 vaccine situation. First and foremost, who, exactly, is willing to invest in projects with a guaranteed zero return on investment? (Spoiler alert: only governments and charities.) Even if a drug company were willing to create a vaccine as a societal good, it would need profits from other products to subsidize it.

Back on Earth, there is a need for investment returns based on risk levels. It follows that limits on profits lead to fewer higher-risk projects being financed – which is essentially a restatement of the old adage, “the more you tax something, the less you get of it” (and vice versa). In a rare case of enlightened policy, Congress recognized that research and development on new drugs for rare diseases would not happen without financial incentives for successful inventions. Hence, the Orphan Drug Act became law in 1983, and in 2007, the Food and Drug Administration was authorized to grant Priority Review Vouchers to companies that successfully produced drugs for very rare diseases. 

The underlying question is which products, processes, or activities should be “insured” by government, with the cost spread over our entire tax base rather than smaller segments of the population. Removing the risk and cost of kidney dialysis from the commercial medical insurance pool (through government re-insurance) helped avoid pricing some coverage plans (and patients) out of the market. In effect, we are seeing an analogous situation with the COVID vaccine – the federal government’s Operation Warp Speed offered guaranteed purchases and/or subsidized the construction of bricks-and-mortar facilities to produce large amounts of vaccine long before there was evidence of safety, efficacy, and regulatory approval. But that is quite different from coercively preempting the profits of the producers.

It is noteworthy that until Operation Warp Speed’s direct subsidies and purchase guarantees, there was deafening silence from most vaccine developers about a COVID-19 vaccine. Any hint of the government proscribing profits by denying patents or other interventions would have been the kiss of death.

The idea of removing profit as a mechanism for price controls is Marxist at its core and would surely result in far less innovation and supply. This seems so obvious that it is a wonder that there seem to be so many BAD sufferers out there supporting this notion. Perhaps it is the pernicious creep of Marxism through our university system (or from certain of President-elect Joe Biden’s advisers) that is responsible for this idealistic drivel. But everyone, from producers to patients, is far better off in a capitalist system where profits are the essential lubricant that makes the machinery of innovation hum. 

Andrew I. Fillat spent his career in technology venture capital and information technology companies. He is also the co-inventor of relational databases. Henry I. Miller, a physician and molecular biologist, is a senior fellow at the Pacific Research Institute. He was the founding director of the FDA’s Office of Biotechnology. They were undergraduates together at M.I.T.

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1 comment

  • This article seems to ignore all the common criticisms of pharmaceutical companies. (I don’t have the data, but I wonder.) Are the profits in pharma out of line in comparison say with similar sized companies facing similar development risks? What level of corporate income tax is pharma paying? Are the pay and benefits of pharma staff and, in particular, their CEO’s out of line? Does pharma sell the same products cheaper outside of the US and then get congress to forbid re-importation to protect profits and are they outlandish profits? Is it necessary for some reason to impose development costs (recovered through higher prices) on American consumers in particular to benefit patients in other countries? Is it time foreigners pay their own way? Again, I do not have the answers but only the questions.

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