I've been reading a number of pieces lately that discuss how the current Big Pharma R&D model is not very efficient. Many times this is being discussed from the individual company's point of view in terms of numbers of drugs commercialized, ROI on R&D investment, etc. The consensus there of course is that the current model is not working well enough. Too much is being spent on developing new drugs without an adequate ROI. The patent cliff is seen as a tangible effect of this inefficiency - where old drug revnues are NOT being replaced by new at a sufficient rate.
But, I'm also starting to see a number of pieces criticizing the whole system from a society benefits point of view. In this context, the current process is criticized as not providing an adequate improvment to overall healthcare globally based on the resources be expended. Sepecific features of the current state that are targeted for criticism include - too many me-too drugs, not enough emphasis on comparative effectiveness, the inefficiencies of the patent system, public subsidies of drug development without adequate return, neglect of developing world and neglected, orphan and rare diseases, lack of innovation and a generally poor societal ROI.
I cam across a good discussion of the "society benefits" angle in the Journal of Generic Medicines written by Joseph E. Stiglitz and Arjun Jayadev. The former is a Nobel Prize winner in Economics from Columbia Univiersity and the latter is a professor of Economics at University of Massachuesetts. Some highlights from their article.
Public Policy Effects. On the one hand, global patent "monopolies", fewer price controls and limited generic competition have all encouraged investment, increasing pharma prices and innovation. Now, efforts to extend price controls, increasing 3rd party buyers, encouraging more generics use have all tended to push prices down and limit innovation. It's a Jekyll-Hyde tension.
Me-Too Drugs. Drugs that do not significantly improve care but receive patent protection are a big drag on innovation. The ROI on dollar of research is reduced. The "me-toos" scare potential rivals from the market. Superior marketing of "me-toos" can even take money from drugs with lesser marketing and better therapeutic value.
Patents. Patents are winner take all. The return the patent holder earns is not a good reflection of their marginal social contribution. A lot of the social value is lost in more limited public accessibility to knowledge. This may be particularly acute when publicly funded research is sold to private sector who obtain patents. The state of knowledge is clearly not advanced and society does not benefit.
Innovation. Patents are a form of prize system in which returns are captured by the exercise of monopoly power. This means not only exclusion of beneifts of usage but also can limit follow-on innovations that depend on that knowledge. Moreover, the revenues earned by "monopoly pricing" owing to patents do not get fully translated back into more R&D as intended - it's like a tax directed toward R&D funding that is an inefficient tax.
Economic Incentives. The 90-10 rule of pharmaceutical R&D persists - 90% research toward diseases for 10% of population. Neglected diseases that affect billions (Schistosomiasis, Trypanosomiasis, Malaria, etc) don't make the cut. This can be explained in purely economic terms - drug companies don't see a return for diseases of the poor with an inabilty to even pay the fixed costs.
Consider these Alternaitves
Prize System. Prizes as an alternative to patents. Governments (or private benefactors) set up a fund to guarantee a return to an innovator (say $1 B). The first producer is paid from the fund and the drug can be sold at cost to developing world. Subsequent drugs that provide small incremental benefits get a substantially descreased portion of the fund. For example, heavily affected countries could pool resources to create such a fund. They could also support their own burgeoning pharma industires in places like Brazil or India. The prize system should not limit ultimate generic competition or extend exclusive marketing arrangments post award so as to not stifle future cost-reducing innovation.
Value-based Pricing. Pricing should not be determined by patent protection. It should determined by the degree of significant additional clinical benefits it affords. This would tend to decrease efforts towards me-too drugs which not only don't provide as much incremental benefit to patients but consume extraordinary amounts of R&D resources that could be targeted elsewhere. This could also reduce the amount that needs to be spent on marketing in attempt to differentiate very similar products. The most likely mechanism to introduce this is for third-party payers to negotiate pricing based on metrics of additional health benefits (i.e. comparative analysis). The concept of using quality-adjusted life years (QALY) is one attempt at this concept.
Public Funding of Drug Trials. Drug trial costs are skyrocketing which ultimately translates to increased prices. Increasing efficiecy of tirals would help to decrease costs and price. Publicly funded trials would take the responsibility from drug-producers. It would remove incentives to hide side effects and overstate clinical benefits. This would limit incentive for me-toos. Clinical trial data would now be publicly available to benefit other innovators. Incentives to bribe doctors to participate and prescribe would be removed. Smaller, more innovative companies might be able to remain independent if clinical trial responsibilties were removed from their shoulders - leading to more innovation and less forced mergers/partnerships with large producers.
Frontier Technologies in Public Domain. Frontier technologies are as those with the potential for enormous gains in health outcomes and further knowledge arises from it. Examples cited include: mapping of human genome, polymerase chain reaction, and gene transfer technology. Ensuring access is needed to ensure maximum social benefit. How can this be done? Patent buy out fund to pay for and place technology in public domain. A prize fund to encourage a patent commons - whereby companies place their IP in the public domain. Public research could be given blanket exemption from paying licensing fees for frontier technologies. Or, a compulsory licensing framework could be adopted internationally to allow for use of frontier technologies. Or, fixed user fees could be instituted for use of frontier technology.
These are just some ideas. The authors hope that some of these proposals can be seen as attractive ways to direct innovation towards the highest social benefits.
See a somewhat related article from GEN, Open-Source Model for Biotech, by Michael Sable, Ph.D., National Science Foundation Graduate Research Fellow and Martin Fellow for Sustainability.
Posted by Bruce Lehr September 17th 2010.
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