AG, the German pharmaceutical giant and manufacturer of the anthrax-fighting
drug Cipro, is experiencing a windfall. The sudden demand
for Cipro could not have come at a better time for a company that
had been in a slump and was hemorrhaging due to a considerable operating-profit
shortfall. The financial press' accounts of how Bayer was scouting
for bailout partners have now given way to detailing Bayer's moves
to triple its production of Cipro. With Cipro, Bayer will be vying
for some of the $643 million the Bush administration plans to put
towards increasing stockpiles of antibiotics.
Bayer is scrambling to fill every order placed by government. The
company is running its facilities 24 hours a day, seven days a week,
has placed its Connecticut plant on an accelerated production schedule,
and has even reopened a defunct German plant. Try as it may, the
likelihood that Bayer will meet consumer demand for Cipro is slim,
if not anorexic.
a command economy, government would decide when the demand for anthrax
tablets has been satisfied, but not in a free market. In a free
market, consumers direct supply and demand. And in a free market,
increased demand leads to increased supply, as producers compete
with one another to satisfy the demand. When the demand for Cipro
has approximated the supply of Cipro, buyers not the government
will have indicated their needs have been satisfied. But
Bayer's promise to triple the production of Cipro cranking
out 200 million tablets over the next three months may do
little to satisfy a demand driven by almost as many Americans.
there is a shortage of a good, it is safe to say that it is a result
of government incursion into the economy. In the Cipro shortfall,
the likely culprits are FDA regulations and the patent system.
regulations go some distance towards explaining why our choices
are limited so as to make Cipro the only drug that has been approved
for the treatment of the inhaled and the most lethal
form of the disease. But FDA regulation does not explain why, once
a shortage has occurred in an already approved drug, the self-regulating
market mechanisms cannot kick in to overcome the scarcity. The FDA
process has, moreover, been streamlined in recent years in order
to allow for the introduction of various AIDS drugs.
contrast, the patent system hasn't changed an iota in terms of the
length of the patent granted. As bad as FDA regulation is, patent
law constitutes even more of a barrier to entry into the pharmaceutical
market. In the case of Cipro, the acute scarcity of the drug is
indeed a creation of the law. The anthrax panic, preceded by the
September 11 events, has amplified the manner in which patents subvert
the market and invite even require further central
would consumer demand have been heeded in a market unhampered by
patent? The same events that have hitherto occurred would have unfolded;
the sudden urgent demand for the drug would have been followed by
a shortfall of supply. Large demand and short supply would initially
send the price of Cipro rocketing. Profits in an unhampered pharmaceutical
market would signal to the many drug makers that it's time to enter
into Cipro production.
processes have all transpired, save one: Drug makers are not permitted
to respond to the street signs of the free market, to profits. The
law prohibits pharmaceutical companies from competing for Cipro
market share, supplying the demand, and, in the process of creating
competition, dealing a blow to the Bayer monopoly price tag. Because
of specific patents Bayer has obtained, other companies cannot bring
supply and demand into equilibrium, thus satisfying buyers.
one thinks that granting to an inventor a near 20-year monopoly
on the manufacture, use or sale of a product is the right thing
to do, is quite apart from acceding that a patent places a barrier
on entry into the market. This barrier is the essence of monopoly.
Capturing a large market share by pleasing consumers does not a
monopolist make. But appealing to government for a grant of privilege
that gives the rent seeker the legal power to restrict access into
the market, so that he is undeterred by competition, qualifies.
Making sure that there is only one price and that a competitive
price a function of the presence of other sellers in the
market cannot arise, is also the practice of a monopolist.
provisions in India's patent law, while making her something of
an untouchable to the international pharmaceutical kingpins, account
for a thriving generics industry. Compare the monopoly price of
$350 U.S. for a course of Cipro to the competitive price for Cipro
set by profitable Indian generic companies. The latter is roughly
$20 for a course of treatment. Cipro does not have a competing substitute
in the market that is not covered by Bayer's patent. The patent
has survived challenges, which would explain why, in turn, the monopoly
price remains unchallenged. In the absence of competition, the product's
high price does not markedly reduce sales or force a market adjustment
on the seller. This patent has pretty much guaranteed that Bayer
reaps a considerable profit irrespective of price or less-than-robust
how the patent holder can generate scarcity and draw a monopoly
profit, the distinguished free market economist Sir Arnold Plant
wrote: "…Whereas in general the institution of private property
makes for the preservation of scarce goods, property rights in patents…make
possible the creation of a scarcity of the products appropriated
which could not be otherwise maintained." In his essay Property
and Ownership, Plant noted that the legislator enables the beneficiary
of a patent to secure an income from the monopoly conferred upon
him by restricting the supply in order to raise the price.
patent, in effect, allows an inventor to forcibly prevent others
from practicing the patented invention, even if another inventor
arrived at the invention independently, an exceedingly common occurrence.
Merely arriving first at the patent office can give inventor A a
legal edge over inventor B, who stumbled in 5 minutes later. Try
as it may, the law fails to nullify the moral claim to practice
an invention that inventor B can assert.
validity of the moral claim of concurrent inventors notwithstanding,
the fact that Bayer's Cipro patent expires only in December 2003,
and the fact that Bayer is the only company that is allowed to produce
ciprofloxacin until then, leaves us with the reality of
shortages. There is no telling whether Bayer might relent
and license the drug to other drug makers, thus enabling generics
to fill the demand generated in the aftermath of September 11. The
anthrax threat has, however, drastically altered the consumer's
is the aim of the U.S. government to be able to treat 12 million
people for 60 days of incubation. This is the calculus of probabilities
courtesy of a central planner. But why is the government justified
in facilitating access to the medication for only a fraction of
the population? If every single paying American wishes to secure
a course of Cipro, if only as a psychological antidote, why not?
Tommy Thompson, U.S. secretary of Health and Human Services would
like to control what American consumers access. If the present rise
in firearm sales is anything to go by, Americans are looking out
for themselves. Americans want Cipro, and they want it now!
content with Bayer's assurances to meet demand, Sen. Charles Schumer
(D., N.Y.) inadvertently expressed what amounts to unease about
the hampered drug market. "I'd still feel a lot better with several
competitors," said the Senator, adding that "it goes without saying
that if we increase the number of manufacturers producing ciprofloxacin,
we are more likely to have enough on hand, should we need it".
fact that Secretary of Health and Human Services, Tommy Thompson,
has gone ahead and asked Congress to suspend the patent on Cipro
is neither here nor there. It tells us nothing substantive about
the patent system, but speaks volumes about the nature of government.
It tells us that government can as easily revoke monopoly privileges
as it can revoke genuine liberties. It tells us that when you make
the law just or unjust you can also break it.
Mercer [send her mail]
is a freelance writer. She has written on intellectual property
for Mises.org (where a version of this article first appeared),
for Insight Magazine, the Financial Post, and Ideas
On Liberty. Please visit her