>>>>My more important point is that if a drug maker had 75 years to exclusively market their compound as opposed to 20 (give or take 8-12 for the current approval process), the cost to the consumer would plummet.
>>>
>>>I disagree, for a couple of reasons:
>>>
>>>1. Exclusivity gives zero incentive to lower prices. Prices of patent medicines never "plummet" until generics enter the market. That doesn't happen until the patent/exclusivity expires (de jure or de facto).
>>
>>As I mentioned to Alan, exclusivity of compound is not exclusivity of treatment.
>
>Agreed, in general. I was thinking about treatments for uncommon or rare disorders. In those cases a single existing, approved treatment is often a de facto monopoly because the barriers to entry for a new treatment are high and, if the new treatment is successful, everyone's return drops due to competition. The bean counters don't like that scenario.
>
>>
>>>2. Maybe you're referring to recovery of (admittedly large) up-front R&D costs, over the longer time period. From a finance POV this should be viewed as an amortization. Depending of course on the interest rate chosen, the yearly repayment of that up-front cost will drop much less than 20/75, and likely can't be reasonably considered a "plummet". Anyone who's ever held a mortgage knows the monthly payments don't change that much when changing the amortization period from, say, 25 years to 35 years, let alone to 75 years.
>>
>>I believe this is a false comparisson. Unlike a mortgage where interest is included, the R&D money laid out to be recovered is not an interest bearing loan. It is a line item expense. In addition, the R&D costs will overlap between compounds so applying a recovery amount to a single compound is not clean. Competition between drug companies is stiff and I have no reason to believe that it would become less so with longer patents. Currently the industry averages around a 16% profit margin. That's not likely to change much with the patent change either. That means the extended life of the patent going into future expected earnings will go somewhere, further R&D & lower prices being 2 of the beneficiaries.
>
>There's no magic about a "line item expense". If it's funds expended, there's an opportunity cost associated with that expenditure, at the very least lost interest, at the other end of the spectrum those funds are denied to other projects with potentially higher ROI.

R&D is a pre-tax deduction, to suggest a lost opportunity in interest we must demonstrate that the ROI for said interest would be at a minimum equal to the tax savings. Using MRK's most recent 10-Q:

Note (numbers are in millions $)
2010 Total Sales = 11,124.9
R&D = 2,296.4
2010 Income Before Taxes = 497.7
Taxes on Income = 126.0 = 25.31% of taxable income.

http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=7540545-981-382042&type=sect&dcn=0000950123-10-102135

We'd need to produce a 25% ROI just to break even. Interest is not a valid opportunity cost comparison.

Note: If it is, I need to know your broker. ;)

>In business it's standard practice to calculate present and future values using market rates for the types of loans that would otherwise be needed to fund the expenditure, regardless of whether there is cash on hand or not. So, the comparison with mortgage amortization is valid and is something lurkers hopefully understand.

I'd also like to object to your previous statement Anyone who's ever held a mortgage knows the monthly payments don't change that much when changing the amortization period from, say, 25 years to 35 years, let alone to 75 years.

Using the default values from http://www.mortgagecalculator.org/ and just changing the loan term.

Loan = $300,000, 5% fixed interest
10 year fixed, monthly payment = $2,964.14
15 year fixed, monthly payment = $2,289.48
20 year fixed, monthly payment = $1,962.39
30 year fixed, monthly payment = $1,654.55
50 year fixed, monthly payment = $1,447.85

I've held a few mortgages and my experience is that the monthly payments can change dramatically based on both rate and term.

>>>>In addition, we'd likely see many more of the orphaned drugs being developed as they would have a much better chance at profitability.
>>>
>>>As I see it, currently there are several barriers to development of treatments for uncommon or rare conditions:
>>>
>>>1. Competition for R&D funding from other treatments that are more "mainstream" and offer a better ROI
>>>
>>>2. Relatedly, limitations on the total pool of available R&D funding. My understanding is health care in the US currently consumes something like 12% of GDP, and pharma R&D is a not insignificant fraction of that
>>>
>>>3. Limitations on key personnel - there are only so many scientists, doctors etc. capable of undertaking pharma R&D
>>>
>>>I don't think extending exclusivity from 20 to 75 years will significantly affect any of the above.
>>
>>The more I think about it I agree. While I don't think it would hurt, it's unlikely to encourage further work for the reasons you state.