Don't even bother arguing that profit motivates progress. The overwhelming majority of researchers and engineers are motivated by the joy of success, not crushing the opposition and getting filthy rich.
The problem with drug development is that the huge majority of efforts end in failure, and depending on how far along the pipeline the drugs are, these failures can be painfully expensive. Truth is, it's not really all that difficult or costly to come up with a nanomolar inhibitor for some key regulatory protein involved in heart disease or cancer. But that doesn't mean you've cured the disease. You might synthesize a molecule that completely shuts down your target protein, and start doing in-vivo studies. Here's where the bad shit starts: maybe your compound can't get past the cell membrane. Or maybe it gets shunted to the liver and immediately degraded - unless it fucks up the liver, of course (which one of the major reasons for negative drug interactions, and why many medications have labels saying "do not consume alcohol"). Or let's say it gets to exactly where it needs to be, but it also binds with high affinity to seven other proteins, three of which we know nothing about, and all of these are essential for other processes. So you come in the next morning, and half of your test mice are belly-up, another quarter are bleeding rectally, and the remainder will promptly croak if you feed them Tylenol.
If you're really unlucky, your drug passes the animal models easily, and makes it into clinical trials with actual sick humans. If you're really, really unlucky, you make it all the way to Phase III trials, with thousands of patients, and only then do you discover that either a) your drug doesn't really work as well as it needs to, or b) a large fraction of patients manifest severe side effects over time, or c) both. At this point the cumulative expense of developing this candidate may be hundreds of millions of dollars. And companies fail at this stage all the time; it's always big news when this happens, and their market capitalization takes it in the ass.
Now, I don't feel terribly sympathetic for drug companies as a whole; they do some pretty sleazy shit, and have paid some well-deserved fines for their malfeasance. But I would find it incredibly depressing to sink years of my life (and millions of dollars of investor money) into a promising clinical candidate, only to have it fail just shy of the endpoint. I'm an academic scientist, and this is one of the reasons why I've stayed in academia so long, for all of its faults. I get paid less, but I don't have to devote myself to narrowly-scoped projects which have a depressingly high risk of failure. If I had to start doing drug discovery as part of some newly nationalized research plan, I would leave without hesitation. Sorry, but if you want me to spend my life doing something that mind-numbing and soul-crushing, you'd fucking better pay decently me for it. The overwhelming majority of people who know anything about drug discovery will tell you the same thing.
PS #1: Please, explain how the extraordinary improvement in computer hardware since WWII was encouraged by lack of patents. Another counter-example: genome sequencing technology has become orders of magnitude faster in the last dozen or so years. (No, I'm not arguing that we should patent everything; I'm still against patents on software and gene sequences.)
PS #2: Don't assume that scientists aren't motivated by crushing the opposition. That's part of the joy of success, and while we may not be doing it for the money, our egos are at least as big as everyone else's.