- The Washington Times - Thursday, November 8, 2001

Watch out, consumers. The Cipro politicians are spreading poison in the marketplace. Catching them requires paying close attention to four issues that are always important to consumers: cost, supply, incentive to produce new products and the role of government.

The easy target for demagogic Cipro pols who think they can make government work better than the market has been Cipro's cost. Bayer A.G., the maker of Cipro, has been charging pharmacies $4.67 a pill, which has produced a retail price of $5 to $7 a pill. That seems like a lot though "a lot" compared to what (dying?) isn't clear.

Bayer had been charging the government $1.77 a pill, but has now been pressured into selling 100 million pills to the government for 95 cents a pill and another 100 million pills (if necessary) for 85 cents each. Bayer has also agreed to donate two million pills to the government.

Bayer made those concessions (price cuts are not unusual for large orders) as the publicity mounted, and people both in the administration and in congress started making noises about breaking Bayer's patent i.e., allowing other firms to produce Cipro even though Bayer holds a valid patent.

The government gives out patents which allow firms to have temporary monopolies in order to encourage firms to produce new products. All businesses from lemonade stands to pharmaceutical companies hope to make a killing, but research and development often takes years and is not always successful. Unless the entrepreneur can see, or at least dream about, the rainbow with a pot of gold at the end, he will avoid risk, and instead take a steady job with, say, the government. If no one takes risks, there won't be any new products. That is not in the consumers' interest.

The real question is not whether the consumer would rather have Cipro at $7 a pill or 85 cents a pill any demagogue in or out of government can figure that out but whether the consumer would rather pay $7 a pill or have no Cipro at all.

Ah, yes, the Cipro pol says, but patents last too long. Firms like Bayer make more money than they "should" off drugs like Cipro. That's an interesting issue, but not one we should settle now. If we want to change the patent laws, let's change them but only after a full debate on the value of the patent system.

Let's not repeal the law for only a single company. That certainly isn't fair. But doesn't the current emergency justify the government's essentially taking control of the drug market? James P. Love, the director of a Nader outfit that advocates lower drug prices, says, "When prices ration access to life-saving technologies, you have morally unacceptable outcomes." But many more people battle cancer each year than have been exposed to anthrax. Yet we haven't repealed the laws of supply and demand, and patents, for cancer drugs.

The reality is that if government rations access to pot-of-gold profits, there won't be any new life-saving technologies. Would the Nader crowd find that morally more acceptable?

What about supply? Can Bayer produce enough pills for the current need? Who knows, but the problem, if there is one, is easily solved. Bayer could keep the patent but license other firms to produce Cipro. The price those companies charged would have to be high enough to cover both their own production costs (plus a reasonable profit) as well as payments to Bayer to compensate it for its ownership of the patent. That solves the supply problem.

What's going on here is politics as usual. Politicians (almost always) think it's good politics to transfer wealth from rich people to poorer people, and in a "national emergency" they find it both more tempting and easier to do. The Cipro politicians hope the rest of us will forget that even "rich" pharmaceutical companies are owned by shareholders (many through their pension funds), some of whom may be sponsors of lemonade stands. Consumers of both drugs and of government services should always be wary of politicians (Cipro pols or any other kind) who seek to repeal the laws of supply and demand. They are heirs to the socialist temptation, and their constituents tend to be hungry. And sick.

Daniel Oliver is special counsel at Consumer Alert and a former chairman (1986-89) of the Federal Trade Commission.


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