Epstein and CATO apparently have not thought seriously about what would happen to the pharmaceutical industry and to its r&d expenditures if patent protection were ended. While r&d expenditures might decline in the short run, in the intermediate - long run r&d would rise as new smaller firms entered the market to challenge the few mega-drug firms that use the patent monopoly as a barrier to entry into the industry. With the entry of new smaller firms, r&d per firm would be focused tightly on areas where a firm could bring a new drug to market profitably before competitors copied it. And enhanced competition would bring drug prices down sharply.
Epstein also apparently ignored the FDA role in delaying even patented drugs from entering the market, a factor that significantly raises the r&d required to bring a drug to market - the opportunity costs of all that capital tied up in a product that cannot be quickly brought to market are staggering. This factor is an extremely serious barrier to entry for new smaller firms.
As I argued in LewRockwell.com several months ago, the FDA should be totally abolished. In its place, a system of private drug testing organizations would spring up, much like the renowned Underwriters Laboratories. Competitive drug evaluation, combined with liability insurance and the potential for product liability lawsuits would yield faster approval and earlier sale of new drugs. It would encourage new and smaller startup drug firms to enter the market. Competition, not monopoly, would increase the number of useful drugs on the market, increase the quality of those drugs, and reduce the price of those drugs.
Despite complaints from the mega-drug firms about the lengthy FDA approval process, they all know that it is a significant barrier to entry into the industry, and not a one has ever called for its abolition.
Couple abolishing the FDA with reduced or eliminated patent protection and you would see a booming and rapidly growing drug industry no longer dominated by a few mega-firms.
