Gavin Newsome takes drugs… or at least insulin

California Governor Gavin Newsom announced plans last week for the state to set up its own manufacturing facility to produce low-cost insulin for California residents. It’s a good idea.

Insulin is an old drug that can be produced in cheap generic form, which is the case almost everywhere else in the world. A monthly supply of insulin in Canada costs $12, in Germany $11 and in Italy $10. In the United States, it costs on average about $100, and in many cases people pay several hundred dollars a month for their insulin. It is a huge burden for people, especially when they are retired or unable to work due to their health condition.

The reason drug companies can get away with charging high prices for an old drug is because they made changes, for which they have a patent monopoly. While these modifications may be of limited value, they allow companies to charge monopoly prices on patents, if they can convince doctors to prescribe the modified versions to their patients.

Newsom’s proposal means that there is a large supply of low-cost generic insulin available. If patients still want the latest patent-protected versions (many insulin modifications are already off-patent), they might still be looking at very high prices, but most people who need insulin will probably get the version generic.

Newsom is not alone in taking the initiative to provide low-cost generic drugs. Mark Cuban started a company that sells low-cost generic versions of a wide range of drugs. Part of the story here is that many people don’t realize that much cheaper generic versions are available for brand name drugs that are no longer on patent. Cuban society can help publicize this fact.

Another problem is that brand name drug makers can often deter generics from entering a market, even after their patents have expired. It is common for a company to hold dozens of patents for a drug. While only a small number may actually involve real innovations, the company may threaten to sue for patent infringement for all the patents it holds.

There is a huge asymmetry in this situation which benefits the brand builder immensely. Besides probably being a bigger company, with deep pockets to fight legal battles, the brand name company is fighting for the right to sell a drug at monopoly prices. The brand manufacturer is struggling to be able to enter a competitive market, much like the sale of pencils or paper clips. Given the huge differences in potential gains if they win, many generics will simply abandon plans to enter a market if they anticipate a long and costly legal battle.

This is where someone like Newsom or Mark Cuban can play an important role. They both have the deep pockets and the legal staff to fight a high-stakes patent battle with major drugmakers. They are unlikely to be driven out of a market unless the drug companies have a clear case.

But fighting abuse in the generic market is the smallest part of the story. About 80% of the approximately $530 billion we will spend on prescription drugs this year will be on brand name drugs. That’s over $400 billion, or about $3,000 per family every year. There would be huge savings if these drugs were sold at generic prices.

Typically, the price of generics would be less than 10% of the price protected by the patent and often less than 5%. Drugs are almost always cheap to manufacture and distribute. It’s the patent monopolies that make them expensive.

The industry will of course emphasize the fact that it devotes significant sums to the research and development of new drugs. That’s true, but we don’t have to depend on industry for that funding. We already spend more than $50 billion a year on biomedical research, mostly through the National Institutes of Health.

Most of this funding goes to more basic research, but there’s no reason why we can’t increase funding and put the extra money into the development and clinical trials of new drugs. In this case, since we paid for the research in advance, drugs developed at government expense can be sold as cheap generics from the day they are approved by the FDA.[1]

There are many reasons to prefer publicly funded open research, rather than granting patent monopolies to offset the expense after the fact. But, at the most basic level, it should be obvious that it doesn’t make sense to charge thousands, tens of thousands, or even hundreds of thousands of dollars to patients, who are generally in poor health, to cover searches that have already been finished. It’s an invitation to the nightmares that millions of families have had to endure paying for the drugs themselves or getting an insurer to cover the cost.

Building the momentum for big changes in public policy is difficult, especially when the process involves confronting a huge and powerful enemy, like the pharmaceutical industry. The best route to accessing a generic drug market is to create facts on the ground, such as the widespread availability of cheap insulin and other generics.

Based on this, the State of California, Mark Cuban, or another billionaire, concerned about public health, could decide to fund the development of new drugs in specific areas. It would demonstrate that we don’t have to rely on patent monopolies to develop new drugs, and also that important new drugs can be cheap. We can argue all day about the relative effectiveness of patent-funded research versus direct seed funding, but whether we have indeed developed new drugs through the latter channel, there is nothing to argue about.

We can’t know if Governor Newsom’s plan to produce insulin is just a one-off move to advertise an ambitious politician (not a bad thing) or if it may be a step towards a broader reform of our prescription. drug system. In any case, it is an important and important step that must be applauded.


[1] I describe a way to channel funding in Rigged, Chapter 5 [it’s free]. It is loosely modeled on the military contracting system, using prime contractors, by the Department of Defence. A great advantage of a publicly funded biomedical research system over military research is that there is no need for secrecy. The requirement for fully open research should make many of the abuses that characterize military contracts impossible.

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

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