Becoming an addict- pharma profit addict

Yesterday, my students started a debate on the role of patents in the health care industry. Since it takes very little money to manufacture the drugs, the prices that people pay are driven by patents. I walked the students through the economics of the pharmaceutical industry. Today, Johnson and Johnson, one of the biggest medical firms, reported its first quarter profits.  What should knock dead any sane reader are the following numbers, as % of sales dollars.

R&D: 10.1% o sales

Sales, general and Admin: 30.7%

Profits to Shareholders (net earnings): 23.3%

Essentially, an industry that claims it wants patent protection because it innovates spends three times as much on promotion as it does on research. Shareholders are taking profits that are more than twice as much as the money going into R&D. In other words, the greatest benefit of patent protection is not innovation, but the profits to shareholders, and the huge sales machine that creates more profit for shareholders.

The pharmaceutical industry, if it is ethical, should come out and acknowledge what its main objective is when it asks for greater patent protection and more patent powers. Perhaps that is asking for too much from an industry that likes to call itself the "ethical pharmaceutical industry."