First of all, we all know drug companies do not pour millions of dollars into developing new drugs out of the kindness of their cold, cold hearts. They do it in order to make money. And if they were not such assholes about it, that would be perfectly OK.
All of the stockholders deserve a return on their investment. All of the employees deserve to be paid. The millions of dollars the companies invest need to be recouped, as do the millions spent on drugs that are never successful. Major advances are only made after many failures. All that money has to come from somewhere, and the successes need to pay for that.
So my thought is this. Let's start with a baseline 20 years for a patent. That is the maximum number of years the company can have exclusive rights to their new drug, and it is 20 years after approval. That can become a shorter period of time, based upon how much they charge for the drug.
Now I am not talking about what the price of the drug is, I am talking about the margin, the cost over the cost of manufacturing and the cost of amortizing all of the expenses incurred in developing it. If you recover the cost in less that 10 years, then you lose a year off the patent life for each year before 10 that you pay off that cost.
And after the development costs have been amortized, you are allowed a markup over the cost of production and distribution (which may rise or fall) of 60 percent. If you go over that for two consecutive quarters you lose another year, but you can only lose one year in any 4 quarters. An exception might be if you go over 100 percent for 2 consecutive quarters some kind of tax kicks in.
In the cost that is being amortized, failed projects can be rolled in, but there are a few caveats.
1. The company can split the cost of any failed development effort between more than one successful drug or pay for all of it from one drug. But that total cost can only be assigned once.
2. In order to write off the cost of a failed development effort, any patents on that drug go into public domain.
3. Salaries of the 5 five highest paid employees are not included in those costs. That means the shareholders pay for the CEO's 20 million dollar salary and plus stock options.
I know this isn't perfect and it isn't a complete plan. But it is a new way of looking at things. A patent is issued by the government granting exclusive rights to produce something. Often the foundation of that something was paid for by government grants to basic research. So you and I paid for some of the research and development that went into that drug.
Drug companies need to make a profit, and they need to be willing to fail. They need to be willing to risk their shareholder's money on a possibility. And when they do discover something that is worth bringing to market, they need to be able to recoup the losses of all the failures and somehow come out ahead. The trick is to give them the incentive to do that and still make those drugs affordable.
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