The villain in this story isn't Merck, but rather research universities that count on patent licensing fees derived from patents on publicly-funded work to pay for their operations (enabled by the Bayh-Dole Act, 1980[1]).
My day job is working with these kinds of institutions, and a typical research grant will consist of two parts - the "directs" that fund the actual cost of conducting the research and the "indirects" that is a flat fee negotiated between the university and the granting agency that goes directly to the university's coffers to pay for facilities and other expenses and can be as high as 40% to 50%. In addition to the direct and indirect costs of research that taxpayers are paying for, the federal gov't allows universities to patent the outcomes of their inventions, under the theory that this will produce sufficient financial incentive for the research to become "productized" and brought to the market for the benefit of the public. Modern research institutions employ dedicated departments for this process, called "technology transfer offices".
This isn't an unreasonable policy overall, as the gulf between what can be shown to be possible in a lab is extremely wide from being a marketable product with a business around it to support the manufacture, marketing, and further development of the original patented invention, and in many places, the revenue generated by the technology transfer office often doesn't cover the cost of running it. However, universities persist, because finding a successful patent is like finding a successful musical act - it's an extreme Pareto distribution where 80% (or more) of revenue is generated by 20% (or fewer) of the patents.
Personally, I’m of the opinion that the Bayh-Dole Act should be repealed and just like the open-access movement in academic publishing[3] and inventions derived from publicly-funded research should be in the public domain. (And I’ve pushed my own former employers and clients in this direction in the past.) However, doing that will fundamentally change the structure of how research is funded in the US, and some reform elsewhere may be necessary to provide the financial incentives to have US companies do the scut work of commercializing US research products, especially to compete against other countries who might be able to do that cheaper with lower human costs, and end up selling those benefits back to us. This may be doable with a hefty injection of funds into Small Business Innovation Research (SBIR) program[4] to encourage more US firms to take the risk of commercializing that one research “hit” that generates US jobs and revenues instead of letting another country capture those hits instead.
So, while some drug reform might be helpful here (especially raising the bar on what constitutes “novel” for minor innovations to secure longer patent terms[5]), the issue you’ve identified in your post is broader than just drugs, and will require overhauling our entire modern research funding apparatus to prevent future shenanigans.
For those of you who are subscribers to the Dispatch, there's a great article by Scott Lincicome today about why we should be cheering on the big drug companies making bank during the pandemic, since that will spur further innovation in the field and new market entrants:
The villain in this story isn't Merck, but rather research universities that count on patent licensing fees derived from patents on publicly-funded work to pay for their operations (enabled by the Bayh-Dole Act, 1980[1]).
My day job is working with these kinds of institutions, and a typical research grant will consist of two parts - the "directs" that fund the actual cost of conducting the research and the "indirects" that is a flat fee negotiated between the university and the granting agency that goes directly to the university's coffers to pay for facilities and other expenses and can be as high as 40% to 50%. In addition to the direct and indirect costs of research that taxpayers are paying for, the federal gov't allows universities to patent the outcomes of their inventions, under the theory that this will produce sufficient financial incentive for the research to become "productized" and brought to the market for the benefit of the public. Modern research institutions employ dedicated departments for this process, called "technology transfer offices".
This isn't an unreasonable policy overall, as the gulf between what can be shown to be possible in a lab is extremely wide from being a marketable product with a business around it to support the manufacture, marketing, and further development of the original patented invention, and in many places, the revenue generated by the technology transfer office often doesn't cover the cost of running it. However, universities persist, because finding a successful patent is like finding a successful musical act - it's an extreme Pareto distribution where 80% (or more) of revenue is generated by 20% (or fewer) of the patents.
Personally, I’m of the opinion that the Bayh-Dole Act should be repealed and just like the open-access movement in academic publishing[3] and inventions derived from publicly-funded research should be in the public domain. (And I’ve pushed my own former employers and clients in this direction in the past.) However, doing that will fundamentally change the structure of how research is funded in the US, and some reform elsewhere may be necessary to provide the financial incentives to have US companies do the scut work of commercializing US research products, especially to compete against other countries who might be able to do that cheaper with lower human costs, and end up selling those benefits back to us. This may be doable with a hefty injection of funds into Small Business Innovation Research (SBIR) program[4] to encourage more US firms to take the risk of commercializing that one research “hit” that generates US jobs and revenues instead of letting another country capture those hits instead.
So, while some drug reform might be helpful here (especially raising the bar on what constitutes “novel” for minor innovations to secure longer patent terms[5]), the issue you’ve identified in your post is broader than just drugs, and will require overhauling our entire modern research funding apparatus to prevent future shenanigans.
[1] https://en.wikipedia.org/wiki/Bayh%E2%80%93Dole_Act
[2] https://hechingerreport.org/think-universities-are-making-lots-of-money-from-inventions-
think-again/
[3] https://en.wikipedia.org/wiki/Open_access
[4] https://en.wikipedia.org/wiki/Small_Business_Innovation_Research
[5] https://www.nbcnews.com/health/health-news/drugmakers-play-patent-game-ward-competitors-n915911
For those of you who are subscribers to the Dispatch, there's a great article by Scott Lincicome today about why we should be cheering on the big drug companies making bank during the pandemic, since that will spur further innovation in the field and new market entrants:
https://capitolism.thedispatch.com/p/pfizer-will-earn-billions-in-profits
It doesn't cover the publicly-funded research angle, but seemed close enough topic-wise to share with folks here.