Prizes, Not Patents, For Drug Discovery
14 CommentsBy Ed Silverman // October 22nd, 2007 // 2:10 pm
Here’s a way to achieve patent reform - blow up the system. And that’s what Bernie Sanders, the independent senator from Vermont, is proposing in legislation he introduced late last week. The bill, which is, in part, the brainchild of consumer activists who follow patent issues, would eliminate market exclusivity for new drugs, but would give inventors or developers cash rewards from a new “Medical Innovation Prize Fund.” A key requirement - the products have to improve health outcomes.
The funding would start at $80 billion a year, and increase with the growth in the nation’s Gross Domestic Product, or GDP. The idea is to eliminate monopolies and allow generic competition in the hopes that drugs prices would fall ‘dramatically,’ and produce savings of more than $200 billion a year, according to Knowledge Ecology International, a group that worked on the bill with Sanders. [UPDATE: We're reminded that he introduced a similar bill more than two years ago when he was in the House].
How would it work? Each new prescription drug or biologic registered by the FDA would “win” something from the prize fund, but the amount given to a developer would vary, according to the evidence, obtained over 1o years, that the product improved healthcare outcomes, according to KEI. Using metrics such as Quality Adjusted Life Years, the managers of the fund would estimate benefits compared to benchmarks of existing meds, and divide the $80 billion fund on the basis of relative effectiveness in improving health outcomes. Products that produced more benefits would get a larger share of the prize fund than products that produced fewer benefits.
This is a novel idea. Others may have different descriptions. But what do you think?
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Each new product would be eligible to participate for ten years - a period roughly similar to the effective life of exclusive marketing rights under the current system, according to KEI, which argues this would balance the need for evidence to evaluate the benefits of inventions with the interests of investors in obtaining a rapid return on investments.
The legislation contains provisions to ensure that firms are rewarded for “follow-on” innovation, while those products that are “first” continue to share in prize payments, even when displaced in the market by new versions that are slightly better.
To read what supporters have to say, take a look at the KEI press release and statements that follow.
Legislation was introduced by Sanders on Friday that would eliminate market exclusivity for new drugs, but give developers large cash rewards from a “Medical Innovation Prize Fund” when products improved health outcomes. By eliminating monopolies and allowing generic competition, prices on drugs would fall dramatically, saving taxpayers, employers and consumers more than $200 billion per year. Under the proposal, the current patent system would still be used, but patent owners would no longer be given monopoly rights to control the manufacturing and sale of products. Instead, patents would be used to establish who “owns” the right to the cash rewards given for new inventions. Drugs developed without patents would also be eligible for the prizes. “As health-care costs continue to spiral, our nation must focus debate on why prescription drugs cost so much. Unfortunately, Congress has never delved into why the process that brings new drugs to market is so insanely expensive, inefficient, and ineffective.
Dave Hamil
I have to ask, where is the money to fund this “Medical Innovation Prize Fund” coming from? Taxes? Right now most big Pharma can’t make ends meet with the $$$ they get from exclusivity. In other words, you’ll need to shift the cost burden from consumers to someone else. The actual $$$ amount won’t change, or else the Pharma companies won’t bother at all.
Jack
Neat idea. Let’s ignore the actual dollar amount (which can be adjusted) and deal with some of the problems with this system.
I understand the rationale behind it, to shift drug revenues to R&D from marketing and sales. However, it operates from what, in my opinion, is a false assumption - that an investment in marketing/sales is a waste of money for society. Without these two groups, doctors would rarely prescribe new drugs. These groups need to create awareness of the drug. True - once a drug attains a certain inertia -marketing and sales may be less important than at launch, but you need to reach that level.
Secondly, drugs aquire new indications over their lifespan - would the compensation be based on the original indication or all the indications? Plus, would off-label use count? Pharmaceutical companies can have data on off-label use, but here it might not count in the equation. And even if it did count - who would disseminate the information?
Of course, most difficult of all, who conducts these payoff studies and who determines which drug gets how much? The FDA has difficult finding people to evaluate whether a drug gets approval. Now you’re talking about getting people to fairly slice up an 80 billion dollar prize - where the opportunity for corruption increases. And you need experts in diverse therapeutic areas to cross compare drugs. You need to say this asthma drug contributed this much and this diabetes drug contributed that much and they need to split the same pie. Who could determine such a thing?
Wayyyyy off topic: I considered something like this for professional atheletes. All baseball players make $100,000 per year while they’re active. Then, there’s a larger pool of money for the baseball players who are retiring (let’s say 100 million - I have no idea what the right number should be). You’re share of the $100 million is computed based on your statistics (lifetime totals, and averages - maybe some bonus for being on winning teams, or big awards like MVP) by a preset formula, and you get your huge retirement bonus in a big chunk. You may want to pool people with the year retiring 1-year ahead of them and 1-year after them to reduce the variation in the quality of players retiring (i.e. you wouldn’t want to retire the same year as a lot of future hall of fame superstars). It would be difficult to implement this system fairly with baseball players - and it’s much easier to objectively quantify the contribution of baseball players.
Tom
This sounds like a less efficient version of Michael Kremer’s paper (see link). The major difference between the two is that in Kremer’s model, an auction process determines the price. After companies bid on the right to the patent, the government comes in and flips a weighted coin (say 90/10) if the government wins, it pays the highest bid and the patent enters the public domain, if it loses the winning corporation pays the inventor and gets the patent. There are variations that include a social value surcharge or the government paying the second highest price to prevent auction fixing, but the principle is the same.
Tom
http://www.wcfia.harvard.edu/node/425
Praveen Tipirneni
As a drug developer myself, I can think of a number of problems with this system - but here are just a few.
1) Incentives to the patent owner. You did describe above the need for an owner to get a quick ROI. In this proposal, the ROI would not be for at least 10 years - the time to go from a patent to a drug not only on the market but one that shows improved health outcomes. Currently, the IPO market as well as licensing market/M&A (and others) allow owners to get payoffs much quicker than that (sometimes even within just a few years).
2) How about the stacking royalties? Let’s say an inventor developed an antibody to VEGF. To practice that invention requires a number of stacking licenses, often approaching double digit royalties. The inventor gets the prize - who pays all the underlying license holders.
Just a few of the issues.
KP
Erghh… I’m in to blowing up the system, but anything thats going to take the power away from the consumer and give it to the central gov’t…. I’d prefer a model that gets closer to letting the whole free-market economy thing work, eh?
EEJ
I have to agree with KP and Praveen above.
Plenty of ideas sound great in theory, but putting something like this into practice is a fool’s gamble that has multiple inherent problems.
How about instead, we actually have the company applying for a patent pay the fees of the patent office, which would help to ensure that they can allocate the proper resources to each patent?
Not sure of the accuracy of the data, but I recently saw somewhere that a patent reviewer in the patent office has something like 48 hours to review each patent, which may be a few sheets of paper, or may be 20 boxes of information. How many of those boxes do you think actually get opened and reviewed in 48 hours?
The scope of the patent should determine how much the potential patent holder pays.
Oh, and let’s not forget that there needs to be a huge change in the way they are evaluated, specifically in the case of “me-too” drugs.
The new Soma 250 is just a lower dose of Soma, but somehow the manufacturer appears to have gotten some new type of patent protection, or extended patent protection. This makes no sense!
Also, in regards to part of Dave Hamil’s statement above, I have to disagree that marketing and sales are necessary parts of getting doctor’s to use a new product. Sure, it may help, but if there’s a new drug out that has better outcomes with less potential negative effects (including exhorbitant costs), Doctors will use them regardless.
Informal studies have shown that doctors really don’t know what each prescription medication costs, and ARE influenced by all those sales reps pushing their biased materials in their face each week.
Contrary to popular belief, doctors do participate in CME events, read peer-reviewed articles and journals, and study the studies that are released…..but they also accept free gifts, meals and other such items in return for information on “this new drug that’s so great”.
James Love
The Medical Innovation Prize Fund (MIPF) approach is a different, and better set of incentives for drug developers. People can argue whether or not .6 percent of GDP is the right amount from the US, but it is a lot of money. The main point is to delink R&D incentives from prices, and more efficiently design rewards. Follow-on innovations, including approvals for new indications, would be rewarded, for the impact of those improvements on health outcomes.
Kremer’s 1998 paper looked at patent buy-out strategies, which is a related but different approach, that is still tied to the possible profits from a monopoly, and a willingness to pay critera that now drives too much investment into “me too” products that are not important medically.
The 10 year pay-out roughly corresponds to the effective period of market exclusivity under current market exclusivity rules. This is a 10 payday approach, where drug developers start getting money right away (year 1), but annual payments are adjusted each year based upon new evidence of the usefulness of the products. Some have suggested a 15 year payoff schedule. The shorter term is designed to give investors a faster payoff.
Atlex
In the end, ask any financial analyst and you’ll find that any scheme of this type will result in an immediate devaluation of pharmaceutical stocks. This approach takes an already risky financial model and makes it even riskier. If that’s the end goal–devalue the pharma industry–then this model is perfect. Unfortunately, there is no guarantee or even strong speculative evidence that this would drive innovation.
Grief
PHARM- alot!! These responses make it clear to me that only Pharms responded to Senator Sanders’ idea. Senator Sanders was the only person in the Senate to vote against the watered-down PDUFA/Drug Safety Bill, a can of worms by the time it got raked over the coals by Pharma.
I’m for anything that takes away the power Pharma currently has - false information from cheerleader drug reps, misleading and boring DTC ads, bribery of Congress, riding heard over the FDA, and of course - should we even mention the thousands of deaths and complications caused by drugs with hidden, lethal side effects.
It is obvious that everyone above cares only about Wall St. Who among you care about human lives?
Congratulations , Senator Sanders, for a novel and ethical idea.
Melody
Heaven forbid that researchers like Banting step up to the plate. This Nobel prize winner sold the patent for insulin to the University of Toronto for one dollar. But that was then . . . and this is now; only Wall Street, economics, ROIs, bloated executive salaries/perks, maintaining the status quo are used as metrics for success. To hell with patients!
TODD
Melody,
Do you post the same repetitive comments on other blogs or is pharmalot blessed with your comments. Have you noticed no one else has jumped on the bandwagon for old insulin? GET OVER IT AND MOVE ON! The argument does not even matter, it is gone and no one is bringing it back. Do you have any other thoughts on the entire world of medicine? Or are you a single, 1 thought person. I am so impressed when people champion causes in which they have not been touched. For instance a white person supporting sickle cell research and care. That shows actual compassion for others outside of your family - consider broadening you horizon. I recommend prostate cancer awareness and bone marrow screening for potential donation to a patient with blood cancers. Do something productive, join the registry, save a life. It is fast, easy and life saving.
http://www.marrow.org
Bob
Todd-Hahaha
Melody and Lisa Van Psycho are two of our resident crusaders.
They both need to find a man, or change some batteries.
Melody
Todd & Bob–
Did Mr. Silverman appoint you as guardians/gatekeepers of his site. I haven’t seen that you have contributed much other than to promote the pharma and medical businesses, so I suspect you have a vested interest in directing discussions.
I have lived with a fellow who has had insulin-dependent diabetes for 50 years. He, like numbers of other diabetics, cannot tolerate rDNA insulin. A recent book published by Prof.Med Arthur Teuscher, MD and practicing endocrinologist, does back-up all I have mentioned regarding the pharmaceutical industry and their lack of caring. rDNA insulin analogs were created because of their patentability/price rewards. No need or benefit for these products has ever been proven–except for the profitability.
To think that the insulin-industry/diabetes hold a unique position . . . that WE are the only ones being duped/enslaved by BigPharma . . .would reveal only an unwarranted naivete.
Deniers or enablers or advocates (whatever label you choose for yourself) need only look to the scientific-misconduct site to see how nasty this industry has become. But I suspect that you have learned from your betters that when a message has merit, you first ignore it . . . then villify the messenger. How very PC of you.