Oberg: Incentives Matter for Biotechnology, Banks

This post appeared yesterday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day.

With all the news out this week about Big Pharma mergers (not to mention stem cell research), it got me thinking about that industry, specifically the patent process. After all, these companies are all about their pipelines and their intellectual property. Why does the patent process exist? Does it make sense? Clearly, we'd all pay much less for drugs if we didn't have to wait around for years to be able to buy generics as opposed to brand names. It would be a good thing to scrap patents altogether, wouldn't it?

Wait a minute ... who would innovate? Who would sink the time and resources into R&D if they knew they would not be able to capitalize on their efforts without adequate protection? Wouldn't we just stagnate where we are? Of course, the government could step in and take over the R&D process ... is that what we want? What we'd be saving in drug costs we'd be paying for in terms of larger government. That is an economic system known as socialism.

Of course, I am being a bit facetious. In order to stimulate risk-taking -- the historic lifeblood of the U.S. economy -- we need to offer some protections for risk-takers. Yes, there is a cost -- we know we will pay higher prices for new drugs for a number of years. But there is a benefit -- we see greater innovation and we have people constantly at work trying to solve a variety of health issues. I am a diabetic, so personally I want to incentivize the pharma and biomedical device companies to come up with better treatments. If the treatments they develop are not efficacious, I will not pay for them, and the companies bear that risk ... but we need them to try to develop new ideas for the chance at temporary monopolistic profits.