In 1917, in the United States, six million people suffered from syphilis. The only drug that offered some relief at the time was an arsenic compound made in Germany called salvarsan. The United States entered the first world war against Germany in the spring of 1917, and the supply of salvarsan–the tradename for asphernamine or “606”– and related compounds (such as neosalvarsan) was greatly limited. The German company also held patents in the United States on asphernamine and its variants, so Congress was asked to cancel those patents.
A physician, George Walker, who was a faculty member at Johns Hopkins University was among the first to testify before a Senate committee. Dr. Walker was in charge of the Johns Hopkins syphilis work. It has been over 100 years since Dr. Walker testified. It’s time to give his effort renewed visibility.
Dr. Walker’s first point is that the German patent system did not permit the patenting of compounds. One could patent the method to produce a compound, and could trademark the compound one produced–but not the compound itself:
The German idea in not patenting the chemical substance is to give an incentive to other expert chemists and ingenious men to perfect another process of manufacture. In that way they can use and sell the same substance, provided it is made by an entirely dissimilar method or way.
This is an intriguing point–quite apart from whether Dr. Walker was accurate about German patent law at the time or whether German patent law is the same way still if it ever did have this limitation. If one wanted to “unleash” American “innovation” with regard to drugs, might not the thing to do be to eliminate patent protection for chemicals and compounds, at least when directed at medical uses? If the invention is restricted to the method of production, then there is an opportunity for others to find new methods of production. Put another way–if there is nothing inventive about the method of production–then the result, too, ought to have nothing inventive about it. Anyone could do it. A patent should not take away from people what they could already do–rather, the justification for a patent is that it grants exclusive rights in something that people could not already do (and thus, they are not prevented from doing anything that they would do). I know, I know–bureaucrats want to unleash American innovation–but not in any known way, but only through regulatory tinkering.
American patent law, by contrast, allows the patenting of “compositions of matter.” Thus, the German manufacturer of salvarsan could obtain patents in the U.S. not just for methods but also for the composition itself. Thus, even if someone came up with a different method, it didn’t matter–they could not use that method to produce salvarsan the compound, because a patent excluded the making, using, and selling of the compound. Thus, no incentive to bother with alternative methods, other than to offer those to the German patent holder.
Dr. Walker then gives an example of the effect of patents on the prices of prescription drugs–remember, this is 1917:
Antitherapin is a drug introduced and sold when the patent was put on it for $1 an ounce. Now, since the patent is off, it sells for 40 cents a pound. At one time it sold for $16 a pound; now, with no patent, it sells for 40 cents a pound.
The patent was responsible for a price 40x what was (we may assume) profitable at 40 cents a pound. We might think that a “reasonable” price for the drug is 40 cents a pound–enough for there to be a reasonable profit in the manufacture and sale. Next, salvarsan. According to Dr. Walker, one dose sells for $4.50.
I can not specifically state what this costs. I do not know what it costs. But I do know that I have gone into the subject pretty carefully with certain manufacturers and they tell me that this substance, the substance itself, that the cost should be practicably negligible….
I can not state absolutely, and I am only stating this on information and belief, but I do not believe this package cost over 25 cents, which now sells for $4.50.
Let’s see. An 18x markup. On questioning by Senator James, Dr. Walker elaborated–
The cost of this thing, it should sell for 50 cents. There is no earthly reason, except artificial conditions that I believe should allow it to be sold for any more than that.
Then Dr. Walker gets into the effect of the artificial conditions. Read.
I represent the clinic at Johns Hopkins Hospital. Mr. Rockefeller, jr., gave us, at my request, $7,000 a year to institute that clinic. We have set aside a certain fund to be used for the purchasing of salvarsan. We exceed that very quickly: before the year is anything like started our money for salvarsan is exhausted.
Over and over again people come there that we know can not take mercury; that mercury, for some reason or other, will not benefit them, or they can not keep it up long enough, and we have to turn them away.
Those people have children that are infected, and those people have wives: some of those men have wives, and here because of a certain firm and a certain patent that exacts an enormous profit from the American public we can not get at the thing, ad we have to turn those people away.
For Dr. Walker, it is not a matter of law or business:
Gentlemen, this is not technical law. This is not a question of property rights, this is not somebody’s contract: this is a question of saving Americans, children who are infected with syphilis, and it is up to us: it is up to the United States Government to get us out of it in some way or other.
Patents are granted by the U.S. government. Thus, the price and availability of a patented drug is also a matter for the U.S. government. You might see in this how prissy and weak the Bayh-Dole march-in provision is–as if Congress did not care to accept responsibility for drugs made available on unreasonable terms, and passed the responsibility to federal agencies in the executive branch, and left it up to them to decide whether to act or not, but in any case made it so difficult for them to act that in any case where there were a problem of availability or price, the march-in would take so long as to be useless from the outset.
Dr. Walker calls the patent on salvarsan “this thing”:
I do not know whether this thing can be abrogated or not, but it is a question where a property right, where a contract stands against the interests of the American people, women and children who have been innocently infected and who can not get the drug and who are being turned away every day of the year from hospitals all over the country because we cannot get it.
“A property right stands against the interests of the American people.” One has to become quite the worm-tongue to argue that the interests of the American people are to reward a German company that has broader patent rights in the U.S. than in Germany, so that it can make a 9x profit over what otherwise would be a reasonable price that included profit.
Dr. Walker then reports that about 3,000 doses of salvarsan are sold each day in the U.S. and the cost to manufacture is “25 or 35 cents.”
Somewhere there is a tremendous profit. Somewhere somebody is making a great deal of money at the expense of sick people, and that is the only proposition that I submit. It is not a legal thing; it is not a point of law I want to argue, but is a point that we need this medicine, and we have got to have this medicine in some way or the other; we must have it.
Dr. Walker then calls out doctors who speculated on the price of salvarsan when for a time it became scarce during the war:
I want to state right there that in the time it was scarce–in the time they could not get it–a number of doctors did buy it and held it up for $15, $25, and sometimes $50 a dose. That is true. Some of the medical profession did that.
It turns out the US Army was obtaining salvarsan from Great Britain, which had canceled the German company’s patent, and was also buying it from German manufacturer based in the U.S., according to Herman A. Metz, its president. (Later, in 1923, Metz would be sued for selling tainted salvarsan to the Army.)
There were competitors to salvarsan–Burroughs Wellcome’s version was called Kharsivan and Polenc Frères called theirs Galyl. It’s just that these versions also came through Metz’s company, since Metz was the agent for the German’s interest in their U.S. patent. Metz himself testified following Walker and two other doctors. His testimony is compelling in another way.
Metz claimed that his company was selling salvarsan to the U.S. Army below cost. If Metz’s accounting is to be believed, he was telling the truth–it’s just that the costs of purchasing the drug from Germany, shipping it to the U.S., packaging it (it could not be exposed to air or it turned lethal) and labeling it ran up the price considerably. There was breakage and availability was affected by hoarding and illegal export. Even salvarsan manufactured in the U.S., Metz argued, would cost $1.50 a dose.
Dr. Walker was not having any of it:
We do not want it as a war measure only. The manufacturers will do anything in God’s world they can now. Give it away, or anything, if you let them alone until after the war. That is all right. We want this thing as a war measure and we want this thing as a peace measure, and we want this price put down; take it out of commerce and get that thing down so we can get it, so the people can get it.
“We want it as a peace measure. Take it out of commerce.” There you have it, succinctly put. What does it mean to take a drug “out of commerce”? It means the decisions with regard to price, quantity, and quality are not ones of commerce but ones of compassion–peace measures, as Dr. Walker puts it.
It sounds compelling. But are price, quantity, and quality of a drug functions of compassioned decision-making alone?