Bernie Sanders introduces anti-pharma-patent bill, aims to replace drug monopolies with prizes

Jamie Love sez, "Senator Bernie Sanders (I-VT) has introduced legislation in the US Senate that would use prizes to reward medical R&D, and eliminate all drug monopolies. It includes an open source dividend of $4 billion per year."
Both bills would eliminate all legal barriers to the manufacture and sale of generic versions of drugs and vaccines. The more ambitious bill is the Medical Innovation Prize Fund Act, which would apply to all prescription drugs. The narrower proposal is the Prize Fund for HIV/AIDS Act, which would only apply to treatments for HIV/AIDS. The Medical Innovation Prize Fund would create a prize fund equal of .55 percent of US GDP, which is more than $80 billion per year at current levels of U.S. GDP. The HIV/AID Prize Fund would be funded at .02 percent of U.S. GDP, which is equal to more than $3 billion per year at current levels of U.S. GDP.

The federal government and private health insurance companies would co-fund the prizes, according to formulas set out in the bills. The cost of the prize funds would be more than offset by the savings from the introduction of generic competition for products.

Both bills have some similar features to Senator Sanders' earlier prize fund bills, but there are also a number of changes. Among those changes are the introduction of an open source dividend element to the bills, which would have at least 5 percent of the prize money going to persons or communities that put knowledge, data, materials or technology into the public domain, or provide royalty free and non-discriminatory access to patents and other intellectual property rights. Annually, this would be more than $4 billion for S. 1137, and $147 million for S. 1138, at 2010 levels of GDP, as an incentive to open source research.

Senator Sanders introduces two medical innovation prize bills in U.S. Senate to de-link R&D costs from drug prices (Thanks, jamielove!)



  1. Sigh…..the FDA stays in the process as gatekeeper. Until the FDA has determined that immersing lab rats in the new drug for seven years produces no ill effects, no prize for you.

    Any AIDS activists on BB, please chime in on this aspect of the proposal.

    1. Rather than putting words in your mouth… what would you advocate in place of the FDA?

      1. The FDA should be involved in testing and reporting the benefits and risks of any drug or other medical treatment. The manufacturer should be required to publicize that information in a major way.

        Thereafter it should be my right as a consumer to make that risk/benefit decision for myself. The government should not make that decision for me.

        Google “Abigail Alliance v. von Eschenbach” to see where I am coming from.

        1. “Thereafter it should be my right as a consumer to make that risk/benefit decision for myself. The government should not make
          that decision for me.”

          First of all, that’s absurd. In your scenario, the only data that exists is the data the drug companies choose to collect. There is also no FDA to decide when they’ve collected enough to start marketing the drug. If you don’t see the problem with this, go take a statistics class. Even if all available data is published, and even if you have the expertise needed to interpret it (You’d need an MD, and Ph.Ds in toxicology, pharmacology, and a few other fields) you won’t have enough data to do so accurately.

          Second, even if you found a way to obtain enough data, you’re gearing up for a public health disaster. It might work for some diseases, but it is a *terrible* idea for infectious diseases. If anyone can choose whether and how to use antibiotics and antiviral drugs, then they will all be useless within a couple of decades. (Eliminating the FDA would also eliminate the need to obtain a prescription, I assume, since there would be no federal agenc deciding whihc drugs can be sold over the counter).

        2. Well, that could have a positive Darwinian effect. I could label my toxic snake oil, Rejected By The FDA But Approved By Jesus! and people would guzzle it.

      2. It’s not hard. Ever heard of underwriter’s labrotary?

        The replacement for the FDA is a private company or non-profit that charges health product companies to test and validate their products.

        Based on the reputation of that company with consumers, companies would be willing and happy to pay them for the service because it would boost sales.

        Sure, they might become corrupted. But if they didn’t, they would lose their reputation, the certification would no longer help sales, and the companies would no longer be willing to pay them. They would look for a certification firm that was actually credible.

        What we have now is an agency with zero credibility, that is totally corrupt and doesn’t carry a lot of weight with consumers, and actually uses armed agents to enforces its edicts. But there is no choice – we, as consumers, have no ability to do anything about it, there is no alternative, no competition – an enforced monopoly.

        There is no way to reform the FDA, because in the long run monopolies almost always start acting terribly. The only solution is to totally abolish the FDA and reestablish the whole health regulatory apparatus from the ground up, from a grass roots level with many certification agencies, based on a foundation of consumer freedom, choice, and a basic respect for the intelligence of the consumers.

        1. You may want to research the credit agencies’ roles in the financial collapse. The idea of “I’ll pay you to tell the world what you think of me”, strangely enough, doesn’t seem to lead to fair appraisals, even with reputations on the line.

    2. I’m going to assume your issue is with possible inefficiency in the process, rather than with the whole rat-immersion thing.

      My issue is with the strength of Big Pharma’s lobbying interests which will blindly attempt to smack down any attempt at reform, regardless of said reforms potential benefits.

      1. So what is your explanation for all the recent removals of drugs?

        The bureaucrats are afraid that they’ll get sued, or fired, or hied up in front of a Congressional committee if 14 people suffer from unexpected side effects.

        The 1,500,014 people who were helped by the drug and had no side effects don’t get a voice, in the matter of course.

  2. As someone married to a person working in Big Pharma/Biotech $4 billion just won’t cut it. Most people don’t realize the amount of money that these companies put into R&D. The company my wife works for puts $8 billion dollars a year into research. A $4 billion dollar prize doesn’t even cover their research investment for one year.

    On top of that, these companies only hold the patent for seven years. After that the drugs that these companies created can be generically manufactured. So in essence, drugs take several years to research and test before they can even be approved by the FDA and then they have only seven years to recoup that investment before other companies can swoop in an make profit off of their hard work.

    A prize like this won’t stimulate research in new drugs, it would likely kill it.

    I really like Bernie Sanders, but this is a terrible idea.

    1. The proposed fund that would apply to all drugs is $80 billion per year, not $4 billion. $4 billion is simply carved out for open source drug developers – leaving $76 billion each year for closed source big pharma types. Big difference.

    2. Bernie Sanders is a pretty sharp guy. I’m withholding judgement until I hear more. Someone mentioned that a lot of these drugs are developed with government money (CDC, NIH) and then basically given away. If that’s the case, I wonder what the prize money is for there too.

  3. It’s good that there are no extremely wealthy lobbyists for the big pharmacy corporations to buy a majority vote against this bill.

    Oh, wait.

  4. Makes a ton of sense to me. You’ve still got market incentives for efficient research (your profit is your prize money minus your research costs). You can decouple production and research (so a firm can focus on being the best at research without having to also be competitive in drug production). And it’s easy enough to tie the prize money back to prescriptions/derivations to avoid gaming of the system: you make big bucks if your drug is used a lot. We can even factor in the purpose, giving a bigger multiple if the drug saves lives versus extends them versus makes them more pleasant.

    Normally the argument would be that a prize system artificially fixes a market size and distorts the economics of the situation. But the beautiful thing is that the pharmaceutical industry is already a heavily distorted market place. The consumer of a drug is not the one paying for it. So product costs have already been decoupled from the profit margins.

    Added bonus? No more viagra spam, because the actual product would be priced competitively with the knock-off.

  5. The problem with this is that Americans are knee-jerk tax averse. It doesn’t matter if they pay the exact same amount when all is said and done. The debate will quickly devolve into,


  6. Drug research is difficult and expensive. It also takes a long-term investment in some very heavy-weight infrastructure. I don’t understand why a drug company would make this investment if the only possible return was a cash payout whose size was determined by politicians who are ignorant of the industry.

    De-linking drug prices from R&D costs is not a good idea. While prizes can work for one-shot demonstrations, drug development requires decades long commitment of a lot of resources.

    1. Why does it matter whether the ROI is market driven or prize driven? The law establishes up front what your prize would be. If that’s lower than your projected cost to develop the drug, it’s a good investment. If it’s higher, there’s a good chance it’d be higher than you’d make in a market setting too. If anything, this reduces uncertainty in payout, making the investment more attractive: where will the fight between pharmaceutical industries and insurers on how much to push patients towards generics stand when the drug comes out in 15 years? That could be the difference between a blockbuster and a failure right now.

      In a sane market, consumer price-sensitivity and producer costs balance each other out. In our current drug system, insurance ensures that consumer price-sensitivity no longer applies, creating a one-sided market where only producer costs matter (and thus spiral ever upward). The bill would decouple the producer costs as well, restoring balance in the other direction. I can accept an argument for making people actually pay for these $50K drugs, but the status quo is just asinine.

    2. I don’t understand why a drug company would make this investment if the only possible return was a cash payout whose size was determined by politicians who are ignorant of the industry.

      Oh, I dunno. This model seems to have worked out pretty well for some of the “green jobs” companies.

      1. I have no doubt that companies promising “green jobs” have benefited from government subsidies. But are there more sustainable sources of green jobs as a result? I’d like to see some evidence.

        Prizes work for simple-to-define, high-profile “first-in-class” accomplishments. They rarely (ask Burt Rutan) pay for the actual costs of getting the prize, which is why they are cost-effective to offer. The prestige value of winning compensates somewhat for the reduced return.

        Incremental improvements to complex systems will NOT be well served by offering prizes. Unless the prizes are exquisitely scaled to the actual risks of development (and also somehow cover the costs of failed attempts) they cannot be a sustainable source of funding for innovation.

        Finally, if you think pharma has a toxic influence on the system now, why would you think that that would DIMINISH under a system where the government was deciding directly how big of a paycheck the industry would get? Don’t you think that influence via lobbying would INCREASE as a result?

        The status quo may be unworkable in the long run, but this whole idea is incredibly poorly thought out, by people who have no experience in the economics of healthcare.

        1. The prize fund sets up a zero sum allocation system where if one pharmaceutical company advocates for and receives a larger share of the fund, other companies must then receive less. The system would result in a world where rival drug developers become critics of each other. The pharma’s lobby under the existing system is extremely powerful, but the prize fund would change everyone’s incentives. Collectively drug developers would have a stake in more transparency and greater objectivity.

          Each drug company would have an incentive to point out the flaws of their competitors’ products, while focusing their own investments on innovations that do the most to improve health outcomes.

          Furthermore, the legislation has a number of requirements for transparency, openness and audit.

    3. Drug research is difficult and expensive.

      Gah. No. That’s not even wrong.

      Before the money is spent on research, there is a decision about what to research. We could be alleviating significant human suffering in the world, instead we’re trying to find the female Viagra. Is there any doubt about the reasoning behind this choice?

      It’s not their fault. When you program something and it goes wrong, it’s just doing exactly what you told it to do. We create the corporation and the market and the laws and we are the actors, and it all does exactly what we created it to do – opposite our intentions. Big Pharma is broken. We’re technologists – we can fix it. We just need to create the right structure. We need to start talking about this.

      How can medical and scientific research be considered proprietary, in any way? Doesn’t this knowledge belong to humanity? Why does the marketplace, with its operant conditioning and distortion, determine the priority of research? Can we delay the female Viagra until we’ve wiped out leprosy, please?

      [passes out from apoplexy]

      1. To be fair, Viagra itself was originally designed as a blood pressure medication. The company didn’t learn about the ‘side-effect’ it’s now marketed for until the clinical trials were underway.

        And, despite what folks here say, drug discovery is exceptionally expensive. Not the actual design of a compound: that IS fairly cheap, and a lot of that DOES come from academia or other publicly funded sources. But then there’s clinical trials. Those are stupidly expensive. And most compounds fail during said.

        So, the companies work to discover drugs that will turn a profit. Because without a profit, they can’t afford to design drugs. Which is why diseases that target 0.1% of the population will forever stay unsolved under this model. I’m not saying it’s great. I’m just saying it makes sense. And that this government model not only won’t work to change that, but fundamentally CAN’T work to change that, as currently proposed. There almost certainly is a better way. This isn’t it.

  7. Go Bernie Go!

    It’s important and fantastic initiatives like this that make me think the liberals and libertarians have common cause on many, many more issues than one might realize at first glance.

    This is a wonderful test of all the self-described ‘libertarian’ Republicans. Will they vote for this, or are they wretched corporatist scumbags?

    I’m not holding my breath!

    1. This is a wonderful test of all the self-described ‘libertarian’ Republicans.

      I’m one. Take the FDA out of the gatekeeper role and I am for this idea 100%.

  8. Now THIS is good news! Let’s hope the IMMENSE GOOD this could do counts for something.

  9. doctors shouldnt get paid by pharmaceutical companies to tell patients that they need ‘their’ (particular company) drugs.
    and the same goes for these pharmaceutical companies putting money forward to stop/help lobby against alternative medicines!!!!

    correct me if im wrong but this is exactly how it seems it is to me, big powerful ppl with lots of money stagnating human advances for more money, quelle fucking suprise, i should structure what im chattin more haha

  10. Drug development is WAY too complex to be able to predict which rewards will be most useful. For example, suppose a committee decides that a drug improving progression-free survival by six months for first-line colorectal cancer patients in a neoadjuvant setting is worth $400 million. (How they’d figure this out I have no idea, but let’s give them the benefit of the doubt.) Suppose further that another treatment might improve the PFS by 12 months, but at a cost of severe gastrointestinal side effects. Some questions:
    Does the developer of the second drug get a prize as well?
    Who decides how big the second prize is?
    What if the second drug also has potential to treat metastatic lung cancer? Does it get 2 prizes?
    Who funds the clinical trials to find all of this information out?

    Drug companies currently take on all of the risk, and are rewarded based on the actual use of their successful drugs. But for each success there are many failures. So it’s naive to think you can add up the amount spent to develop one drug and label that as its “fair” value.

    I’d add that the problem with rising medical costs is not just the greed of (pharma, the AMA, insurance companies). It’s that modern medical treatment is EXPENSIVE, and that a large group of people (i.e., most of us reading this blog) expects to get it regardless of the cost. The only way to reverse the rising costs of medical care is to significantly reduce the public’s (i.e., our) expectations. The government deciding what a treatment is worth will lead to a complete breakdown of the system (as is happening with Medicare, where every year the reimbursement rates drop, to the point where it becomes impossible to break even delivering these services).

    1. How does any of that differ from the current system, though? The pharmaceutical companies already have to estimate how big a market there would be for a drug. What if a competitor produces a different version with a different set of side-effects, which will get prescribed? This uncertainty is inherent to R&D, not part of the prize system. As it stands you estimate the market size and decide what to pursue. Under this proposal you estimate your reward. And again, give the awards based on actual prescriptions. You can still have patient/doctor decisions differentiating between competing products. You can track which prizes are being researched towards to measure imbalances in prizes.

      I agree with your last paragraph, that changing people’s expectations around medical treatment is a valid solution. For example, insurance could knock a zero off a drug’s cost. $50,000 a month? Now it’s $5,000. Can’t afford that? Sorry, healthcare is expensive, not everybody can afford to survive your illness. But we have to do one or the other, either capping costs or actually passing them on to the consumers.

      The problem is everybody screams about mandating health insurance, or capping medical expenses. But everybody screams even more loudly when a loved one is denied life saving treatment. So we’re left in this middle ground we’re we pretend there’s a working market, but refuse to refuse any treatment at the same time.

      1. I disagree with you that there is any rational way to prospectively determine the value or fair reward for developing a drug treatment. And the prize model is just silly for anything other than one-off accomplishments in very well-defined areas.

        Drug companies TRY to estimate the risk and reward of developing drugs, but they often get it wrong. Nevertheless, they know that if they can get into a new market, odds are they will recover their costs and earn a profit. Setting up a prize committee to adjudicate a reward will just result in pharma “teaching to the test”, that is, developing drugs that meet the barest minimum criteria for getting the prize.

        There is simply no reasonable way to estimate the value to society of treatment at the level of granularity that is required to actually develop a drug. What would a committee reasonably be expected to set as a prize value for a cancer drug that works for only 30% of patients? What if there could be a diagnostic to tell which 30% would benefit? What if it worked only in combination with a commonly used chemotherapeutic? What if it only worked in combination with surgery?

        The only people who can come close to addressing these issues are the people who are currently developing or prescribing these drugs. I’m pretty sure that having the drug developers set the payoff values is not what the supporters of this bill have in mind.

        So do we add political oversight of the payoff matrix for drug development? That seems even more fraught with risk of manipulation than the current system.

        Another problem that I’ve mentioned before is that the development failures are subsidized by the successes. Any prize structure would have to take this fact into account, or no-one would want to participate.

        Finally, there is the problem that innovation, when it occurs, usually does so in areas where no-one expects it. I’d expect that a truly innovative new approach to treating a disease would not be foreseen as a possibility by the medical prize committee. If such a treatment was not in the payoff table, then there would be no possibile rationale for developing it. The system of competition in a free market*, despite its many flaws, at least encourages innovative people and groups to make risky ventures into unexplored areas.

        My (somewhat educated) guess is that the price of medical treatment in the US today probably pretty fairly reflects its actual cost and value overall. It is truly phenomenally expensive to provide the kind of health care that we’ve come to expect. (In the case of one successful cancer drug that I have direct knowledge about, a mandated 10% decrease in the drug’s price would wipe out the entire profit margin, and make the drug’s development and manufacture a money-losing proposition.)

        I agree completely with your last paragraph: just because a treatment is possible doesn’t mean that we as a society can afford to deploy it. The reality that no-one wants to confront is that maybe we expect too much from our health care system. Maybe we need to get used to accepting our fate when a doctor tells us that we or our loved one have 2 months to live, instead of insisting that everything be done to avoid what we see as a premature death.

        *Not claiming that this is exactly what we have now.

        1. Excellent comments Tom,
          I’d differ on only two aspects:

          >My (somewhat educated) guess is that the price of medical treatment in the US today probably pretty fairly reflects its actual cost and value overall.

          I don’t think actual cost of the drug is ever taken into account other than the price floor for the marginal price-per-dose sold: R & D are sunk costs at that point. Each pill is priced at the highest point the market will bear so as to extract the maximum revenue before generics are introduced. I don’t think a company would ever discount the price of a drug because it was unusually cheap to develop or produce, or charge a higher than optimum price because development was expensive.

          > But we have to do one or the other, either capping costs or actually passing them on to the consumers.

          Capping costs generally doesn’t mean letting people die. At least not in Northern Europe, where they spend less on health care than we do and get a better value for their money.

        2. Tom Ames comment illustrates a misunderstanding of how the prize fund works. There is no set “payoff table” where a developer can only reap the rewards if his innovation falls into some pre-determined category.

          The board does not specify — invent X and get Y dollars. Rather, it creates a set of rules and competition and lets drug developers seek their own targets, and even benefit from serendipity. S.1137 encompasses “any drug, biological product, or manufacturing process for a drug or biological product,” and would broadly cover new medical innovations, but would not cover other innovations such as medical devices.

          The Fund is designed to have evidence, data, and outcomes drive the division of award money among the several firms qualifying for prize fund payouts. This is sometimes called a proportional reward system, although the bill is more complex that a simple proportional reward system.

          Because no one knows for certain the value of an innovation at any given point in time, developers participate in annual competitions over the course of ten years. If a new drug was turns out to be better than thought initially, the developer would submit new evidence and reap a larger share of subsequent years.

        3. My (somewhat educated) guess is that the price of medical treatment in the US today probably pretty fairly reflects its actual cost and value overall. It is truly phenomenally expensive to provide the kind of health care that we’ve come to expect.

          Interestingly, this is a proposition that can be tested, or at least investigated. There are at least 30-40 countries in the world that have the level of health care “that we’ve come to expect”, and their overall costs are known (whether paid for by their respective governments or individually by the patients).

          Generally, the per-capita cost of this health care is about half of what it is in the US. There are some exceptions (Luxemburg, Norway and Switzerland), and some manage on a lot less (eg Singapore), but about half (40% to 60%) seems fairly common.

          To put it another way, the US government spends $3074 per capita on health care. The UK government spends somewhat less, $2939 per capita [1]. In the US, patients privately pay once again that much, in the UK health care is free at point of use. The health outcomes are pretty similar, with possibly the UK slightly better but pretty much a photo finish.

          Conclusion: Either the citizens and governments of a dozen nations are managing to get some fairly substantial discounts… or the US is being over-charged.

          [1] Figures for 2006 (latest) from

  11. This is simply a brilliant idea. And don’t say it can’t be done. Drug companies clearly have ways of predicting whether a line of research is a worthwhile gamble or not, and how much money to allocate to it. We can use those same methods to determine how big a prize has to be in order to motivate researchers.

    The beauty of the system is that if a prize fails to spur research we can just increase it as necessary.

    1. ‘The beauty of the system is that if a prize fails to spur research we can just increase it as necessary.’

      Sounds like the “oh well they’ll just innovate faster” answer.

    2. Drug companies clearly have ways of predicting whether a line of research is a worthwhile gamble or not, and how much money to allocate to it.

      Sorry, no. As someone who works in the field, believe me when I say that the pharmaceutical/biotech industry has dumped ungodly amounts of time and money into areas of research that went nowhere. Doing cutting edge research means working in uncertainty – most of the work being done in pharma labs has limited validation, and even then it’s rare to have any idea of whether or not it will work in people. And that’s not even touching the 90% clinical failure rate of new drug candidates. Think about that – 90% of programs that have gone through the entire preclinical process and that the company thinks will work fail for one reason or another when dosed in humans (usually due to toxicology or lack of efficacy). A one-time prize can’t address this problem.

      Developing new medicines is an incredibly complex and expensive process. I fail to see how $80 bn in prize money can possibly be adequate in an industry that spent $67 bn in R&D last year:

  12. The only way to reverse the rising costs of medical care is to significantly reduce the public’s (i.e., our) expectations.

    No, no, no, Tom!!

    Taxing the rich will pay for everything, and more.

    We don’t have to deny ourselves anything, because people who aren’t us are a limitless source of dollars!!

    Didn’t you get the memo??<

    1. “We don’t have to deny ourselves anything, because people who aren’t us are a limitless source of dollars!!”

      A better representation of the attitude of large corporations toward the taxpaying public could not have been articulated.

  13. The problem is everybody screams about mandating health insurance, or capping medical expenses. But everybody screams even more loudly when a loved one is denied life saving treatment.

    We are headed toward rationing of health care, in a big way.

    The Democrats’ path is to ratchet down the payments made to health care providers, with the idea of reducing access simply by there being fewer and fewer places to go for care. (Don’t believe this? Check out how many doctors in your town accept Medicaid patients, and how many are restricting the number of new Medicare patients they see).

    The Republicans’ path is to turn this all back over to the insurance industry, and let them be the bad guys as they traditionally have proved they can do so very well.

    Either way the intent is to cap what’s spent on health care as a nation. And that means saying “no” in a lot of cases where we have been saying “yes”.

    The American health care system in which everyone gets the best care that medical research can devise, regardless of cost, kinda sorta existed starting in the ’60s for twenty years or so.

    It’s fast disappearing….wave it goodbye, it won’t be back.

  14. Sure, they might become corrupted. But if they didn’t, they would lose their reputation, the certification would no longer help sales, and the companies would no longer be willing to pay them. They would look for a certification firm that was actually credible.

    Too bad about all the people who would get hurt/die in the meantime while the invisible hand did its magic…….

  15. Here’s what is really going to happen.
    Some members of congress and some big-Pharma lobbyists are going to sit down in a quiet back room over some hookers and blow and bang out a “compromise” version of this bill. In the compromise version there will be a prize paid for by new taxes, and they will still retain all patents.

  16. Interesting idea, but terribly flawed in at least one major way. A decade ago, it cost about $8 billion to bring a drug to market. This has gone up every year as materials and labor become more expensive, easy targets are solved, and various chemicals become illegal for use, necessitating more expensive, less convenient routes be used in exploration. The cost is much higher for novel targets: 8 billion tends to reflect major updates to known drugs, improving efficacy, reducing toxic effects, etc., but not trivial updates meant only to extend a patent.

    So, at the current amount proposed, no more than 10 very simple, cheap drugs could be put on the market each year. More likely, it would be closer to 5. Which means either a lot of research wouldn’t get done, or a lot of companies would be left with no possible reward for daring to finish a week later than their competition, or the fund would have to be enlarged, tremendously.

    Similarly, there is an absurd amount of information about drugs and biology put into the public sphere every day. The NIH funds it by the gob-full. Will this be double-funded by this proposal? Or is it merely industry that gets a reward, when it releases the research that won’t ever be profitable, just like it normally does to get papers for its scientists?

    Finally, re: drug patents, it really is worth remembering, the drug companies get the short end of the stick when it comes to patent law. A drug company has to patent a drug a few years before it would even potentially hit the market, specifically before clinical trials begin (the most expensive part of the process). By the time it does hit market, if it does at all, vastly less time is left on the patent than would be left for the patent for almost any other invention in the country (and certainly VASTLY less time than the money-making rights for some guy who spent 2 days and $30 bucks putting pen to paper, and writing a song that happens to jump to number 1). So, the company needs to charge even more per pill, over an ever shortening length of time, to recoup those tremendous expenses.

    This, of course, also leads to why drug companies now take rather unethical shortcuts, selectively publish data, etc. People want more drugs, but don’t want to pay for them. And here’s the government threatening to abolish any attempts to turn a profit, and set an almost certainly sub-standard ‘prize’ for taking the time, effort and risk to invent a new compound.

    A much simpler way to help fix the problem would be to extend drug patents. Let the companies actually have a monopoly on their sales for as long as any other inventor is granted one, and prices would go down, since less profit would need to be generated per year. But a government prize, with a spectacularly small fund, and a discriminatory law against profit (which is all denying patents to a single class of inventor is)? That just guarantees an end to the American pharma industry. And a lot of lost jobs, and lost expertize.

    1. I fail to see how $80 billion is a “spectacularly small fund” if it simply reward the development of new drugs. Your assertion seems to be at least somewhat predicated on your earlier comment that it costs upwards of $8 billion to bring a new drug to market; this figure is absurdly high. Even PhRMA, the trade association for big pharma, only claims a risk adjusted cost of $1.3 billion.

      What evidence do you have to support your assertion that an extension of patent term duration would lead drug companies to invent more or lower prices? Isn’t it in fact more likely that drug companies will continue to charge high monopoly prices, over a longer period of time? And, what about the many cases when drug companies charge very high prices for drugs that were invented on NIH grants? Isn’t the legal monopoly and the demand for the drug what drives prices, rather than the costs of drug development?

      1. Krista, my 8 billion figure comes directly from head scientists at Pfizer, Merck, BI, etc. as heard at various lectures. The number tends to fluctuate in that vicinity. They could have been lying, certainly. I see no reason for them to have done so, however – they’re not marketing people, they’re scientists. And, unlike, say, a trade group, they actually have access to all the data, and do not exist solely for marketing and lobbying purposes.

        Similarly, I have no proof that patent extension would cause lower prices. I have only an absurdly good base of logic. Prices are set based upon prospective number of pills to be sold, and time remaining to work off invention debt, and desired profit. By extending the time remaining to work off the debt (ie. patent time, before somebody sells the same pill for $5 a bottle), it is logical that prices would go down, since less would need to be charged, per pill, with more years of exclusivity left. While there would remain no competition for that particular pill during the ‘monopoly’ time, there would still be competition from similar treatments for identical problems (which exist except in very rare cases). Competition plus normal patent time would, logically, lead to lower prices, since prices COULD go lower.

        It tends to worry me a bit that people so often refer to sale of drugs under patent as some form of ‘monopoly’, while just about any OTHER invention, people don’t mind the patent being granted. Yeah, the pharmaceutical industry can be abusive and immoral. And it’s fine to look to fix those things. But it SHOULDN’T be singled out as unable to make use of patent law, like every other industry gets to. There is plenty of competition out there. The industry already gets fewer years off a patent than almost any other industry in existence. And they do something that’s actually pretty darn important to modern society. I can’t blame them for wanting to recoup their research expenses.

        1. Kattw. In the most widely cited study of drug development costs, Joe DiMasi and others said that big pharma companies had tested an average of 5,303 patients in Phase I-III clinical trials, and had out of pocket costs of $125 million per approved drug on clinical trials. They adjusted for risk and capital costs to get a risk and capital cost adjusted figure of $802 million, which they conceded was higher than the costs of developers of orphan drugs or small drug companies with lower overhead costs. DiMasi’s study was first presented by the CEO of Merck. How do you get to $6 billion for a single drug? DNDi just reported it has developed 4 drugs for $100 million. Even for the Internets, your assertions seem pretty wild.

  17. People commenting on the bill might consider some data on the economics of drug development. (1) The United States is about one quarter of world GDP, and about 36 percent or so of global drug sales, so whatever the US puts up as a reward is only part of the global incentive for drug development. (2). $80 billion is a lot of money, particularly for the US market only. PhRMA estimated global R&D spending in 2010 at $67.4 billion, and much of that is investments in trials of dubious scientific merit or importance, that are related to marketing unimportant me too products. (3) PhRMA itself claims the risk adjusted cost of developing a new drug is about $1.3 billion, including capital costs. (4) A present, companies are registering about 25 new chemical entities a year, less than half of which are considered significant improvements over existing medicines. (5) DNDi presented data to the WHO last month saying they registered 4 new drugs for a total of $100 million, and have a healthy pipeline also. (6) In 2010, global drug sales were $825 billion. R&D was $67.4 billion, or only 8.2 percent of sales, accepting the industry’s own estimates. Probably half or more of the $67.4 billion in R&D was not medically or scientifically important. I think you are probably getting about 3 or 4 percent on the dollar back in useful R&D under the current system.

    Also, the Sanders’ Prize Fund bills do provide mechanisms to reward interim research. You might want to read the bills and the background materials to see how they are designed. The big bill would also provide $4 billion a year in incentives to openly share R&D, addressing one of the biggest problems in the biomedical R&D — not enough collaboration and openness.

    1. What do you mean by “marketing unimportant me too products”? As I’m sure you know, a drug developed to treat, say, pancreatic cancer cannot be marketed for breast cancer until it has gone through the entire FDA clinical trial process for that new indication.

      This is true even if there is good reason to believe that a drug that works in one indication will be as efficacious in another. And the second round of clinical trials is no less involved or expensive than the first. What motive would a drug company have to engage in these expensive new trials unless it would benefit from the expanded market?

      1. Tom, by “marketing unimportant me too products” I am not referring to new indications. It is important and socially useful to establish new uses for older drugs, as well as to study their safety and efficacy over time. The Prize Fund would reward investments that establish new uses for older drugs, not be granting monopolies for new indications (often hard to enforce for off label use of older drugs), but through cash awards.

        I was instead referring to a significant amount of what drug companies do these days — put a product on the market that works about the same as an older drug, and put some major marketing muscle behind it. I am also not suggesting all me too products have zero value. But the current set of incentives provides excessive rewards for duplicating known efficacy, and marketing that drives prices and sales up, even when there is little if any evidence the products improve outcomes over existing medicines. I don’t think this is a very controversial point among health economists.

  18. >A decade ago, it cost about $8 billion to bring a drug to market.

    It was about 400 -800 million, depending on what was included.

  19. Valuation
    A number of persons commenting above are not familiar with the basic approach for the “end product” prizes in the bill. It is not the case that once a product is brought to market someone writes the prize check. Rather, the developer participates in 10 annual competitions, where all other drug developers participate, to obtain shares of the prize fund payouts. Developers have to provide evidence to support their claims on the fund. It is zero sum, so if company A gets more, company B gets less. The annual competition takes place over a ten year period of eligibility. Claims are based upon exactly the same type of data now used to press claims for reimbursement, with some important exceptions. One, you generally have to demonstrate the product improves outcomes, rather than duplicates outcomes. This turns out to be very important. Second, for some products, like antibiotics, stockpiles for contingent health emergencies, and other cases, the claim of benefit need not be based upon current consumption. Third, a product that sees market share go to zero, when a better follow-on product is brought to market, can continue to make claims, if the follow-on products are based upon the 1st product. There are other nuances, but in general, by de-linking rewards from product prices, incentives can be made more efficient.

    For the open source dividends (5 percent of payouts) and the interim R&D prizes, other valuation approaches are used.

    One other innovation in the bill is the creation of intermediaries that compete for contributions from insurance companies, to support open source interim stages of research and development. The intermediaries can use any valuation method they want, but they have to persuade the insurance companies they are making useful investments.

    1. If I’m reading you correctly, the main task of the drug company will be to justify to some panel of supposedly objective experts why they should get a share of this year’s fixed subsidy to the pharma industry.

      How does this foster innovation while keeping costs down again? And where do you find this panel of experts?

      1. I read a blog by a neurologist named Dr. Grumpy. If you search it, you can find a lot of complaints about me-too products, but I’ll give you his most classic example:

        A company makes a 10mg pill. When it goes generic and is no longer protected by patent, competitors get to make that same pill cheaper. So they discontinue that pill, make a 5mg pill at the same price, tell you to take two, and your medication lasts half as long! Then they claim they discontinued the original pill “for cause”, as the formerly insignificant side-effects are too great, and that’s why they reduced the dosage. Now the generic manufacturer has to re-test since it was dropped “for cause.”

        Or they change an instant-release pill to extended-release, at the same dosage, same side-effect excuse.

        They’ve got a lot more of these games, combined with advertising telling customers that the chemically-identical generic is somehow not as good.

        Offering Medicaid patients co-pay coupons for expensive medications so it’s ‘free’ to the patient since the taxpayer pays it all.

        Public education about chemically-identical generics and mandating medicaid to only pay for generics (when available) would be a good start. That’s what the crazy canucks do.

        1. – There’s a big assumption here that we’re all passive victims of marketing. If insurance companies and other third party payers are the ones suffering from the high cost of “me too” drugs that differ only with respect to marketing, why do they continue to reimburse for them?

          – It sounds like a lot of problems would be solved by severely regulating the marketing of pharmaceuticals. Addressing that issue would be a lot easier, and have a lot fewer unintended consequences than would eliminating patent protection for potential drug compounds and putting a presidentially-appointed committee of non-experts in charge of an extremely complex industry.

          – Medicare already does a crappy job of reimbursing for services (just ask any mental health provider). Like medicare, this “prize” system will become a political football about 30 sec. after it’s signed. The companies with the most innovative lobbyists, not the most innovative scientists, will be the big winners. And you can kiss the openness of the patent system goodbye.

  20. The raison d’etre of the patent process is to ensure that important information about innovative inventions or discoveries gets into the public sphere. The patent system, in granting a reasonable period of monopoly, gives the inventor an incentive to publish he details of the invention.

    Modern drug development is a very open process: scientists in drug companies not only write patents, but often are encouraged to publish their work in academic medical journals. Many drug companies are active participants in the broader community of biomedical research. This openness depends critically on knowing that you can recover your development costs by, for a short time, keeping competitors from using your work to make generic versions of your invention.

    Before there were patents, the only way that an inventor could profit from an invention was to keep it a trade secret. I predict that the major effect of this legislation will be to thrust the pharmaceutical industry back into the dark ages of closed source development. There will be every incentive to obfuscate and confuse, in order to keep competitors from stealing their work.

    Also: I can’t wait to see what the world’s reaction will be to the US unilaterally declaring that there is a class of patents that will no longer be honored here. How long before the global pharmaceutical market evaporates?

    Another problem: the committee that decides what each and every new and existing drug is worth is appointed by the President. Four of the appointees are insurance industry related, while only 2 are from the ‘medical research and development sector’. Thirteen people deciding how to spend $80 billion. This is an ENORMOUS job being handed to a small group of people, and is an open invitation to corruption.

    I’d really like to know if anyone with a shred of expertise in health care economics was involved in this bill. It looks like it was transcribed directly from the back of a cocktail napkin.

    Unintended consequences, we haz them.

  21. So instead of research being funded by the market directly, a government committee should act as a middleman?

    I’m sure that’ll improve efficiency.

    1. Rayonic, How much of the market for drugs do you think is being funded “directly” by end users, and how much by insurance companies or governments? In the case of the HIV/AIDS market, perhaps 70 percent of the persons in the U.S. receiving drugs are supported by governments. Is Medicare the private market? How many cancer patients pay out of pocket for chemo drugs? And who pays for drugs in Canada, the UK, Australia, New Zealand and France — to mention a few countries outside the U.S. If it is a question of paying less, governments all over the world pay much less than do U.S. private insurance companies. Does that make the U.S. private insurance system seem more or less efficient?

      One of the features that makes the prize system attractive for medicines is that no one thinks a well functioning market for drugs should have the valuation decisions be done by the end users. Third parties already decide what new drugs are worth.

      But in terms of efficiency, is a system that jacks up prices by more than $.5 trillion globally and produces less than a dozen drugs a year that are remotely better than existing medicines that efficient? Is its efficient when only 8 percent of sales revenue is spent on anything that can be called R&D, using the most generous definitions?

  22. So the open-source portion would be a bit analagous to National Endowment for the Arts grants in that in exchange for receiving it you have to forego exercising certain rights over your work in favor of the public good, am I distilling that correctly?

    For an NEA grant your work (of art) has to be non-commercial and contributed freely to society instead. For an open-source Prize grant your work (drug research) would have to avoid reserving the usual IP rights and be contributed freely to society instead.

    That’s a good system and I like it. Completely opt-in and all of the incentives are positive.

    1. Except that you don’t have a choice with the Prize system. As compensation for having your normal patent rights taken away you’re “allowed” to participate in a system where a committee may or may not recognize your contribution with some amount of money.

      The rough analogy would be if all artists were required by law to open-source their work, and receive all of their compensation from an NEA-controlled fund.

      I think we can all agree that this would be a grim scenario under certain administrations. (John Ashcroft’s “Let the Eagle Soar” would have been a top ten hit.)

      1. I’m not allowed to choose whether or not I like having a state monopoly on the cancer drug Herceptin, which is priced at around $100k, and generates $.5 billion a month for Roche. The state imposes this incentive regime on me, and I have to pay for it, or let someone die. (This is not a hypothetical example). So spare me if I don’t bleed for people having state solutions imposed on them.

    2. AirPillo, yes. The Prize Fund has different elements. The open source dividend is voluntary, as you point out. You can patent and restrictively license a technology, or make it very open. That choice will determine if you are eligible for the open source dividend. Someone may prefer to have a proprietary licensing business model for upstream innovations, and hope the royalties from entities that will or hope to win end product prizes will be the profit maximizing strategy. What the Sanders bill changes is the current situation, where you get nothing if you share research, even though sharing is socially useful. The Sanders bill makes sharing a potentially profit maximizing strategy, that has economic rewards that compete with being proprietary.

  23. Not the old ones about drug companies doing all the research.

    Most of the basic research to get new drugs is publicly funded.

    Drug companies spend most of their money on marketing and litigation.

    What money they do spend on research is often on ways to patent the drug and ways to lengthen the patents beyond their normal lifetimes.

  24. $80 billion per year is small potatos in the pharma industry. That is about how much the gov’t pays per year in medicare part D.

    1. $80 billion as a reward for R&D is in fact not small potatoes. It is not a payment for the physical copies of the drugs or all of the former cheerleaders who visit doctors offices. It is a payment for developing the drugs. Companies are paid separately for making and selling the drugs. $80 billion is more than 60 times what PhRMA says it needs to develop a drug, and the U.S. is only 1/4 of the world GDP these days. $80 billion is much more than PhRMA, the trade association, claims was invested in R&D by all companies worldwide in 2010. $80 billion is probably more than 5 times all U.S. related royalty income from pharmaceutical drugs patents in 2010. $80 billion is about 2.5 times the size of the NIH budget. $80 billion is roughly 3 times what PhRMA members claim to have spent on all Phase I, II and III trials in 2010. But if you don’t like a U.S. prize fund of $80 billion, how large do you think it should be? IMS is reporting US sales were about $310 billion in 2010. How much of a reward for R&D do you think that $310 billion in U.S. sales generated? It is not as if 100 percent of the companies worksforce is employed in R&D. And, you still have to pay for some to manufacture and sell the drugs. (That’s a separate market in the Prize Fund approach). I can appreciate that $80 billion might not be the right number. It might be too high or too low. But it is certainly not trying to reward R&D on the cheap. It is, in fact, a lot of money, as a reward only for successful R&D projects.

  25. Average cost of a clinical trial:
    Phase 1 is $15,700 per patient (average size is 20-100 patients)
    Phase 2 is $19,300 per patient (20-300 patients)
    Phase 3 is $26,000 per patient (300-3000 patients)

    Then add in cost of R&D, animal testing, legal, FDA and other expenses and you’re looking at how why drugs are so expensive. And that doesn’t include the vast majority of drugs that don’t even make it to clinical trials. Plus a cancer drug takes on average 6 years to go to clinical trials then another 8 years before approval and you’re looking at a huge risk (and money).

    1. Coweatyou. Using your estimates of trial costs, and patients, you are claiming R&D costs are as follows:

      Phase I:         314,000        1,570,000
      Phase II:        386,000        5,790,000
      Phase III:     7,800,000       78,000,000
      Phase I-III    8,500,000       85,360,000

      Your high estimate of the cost of Phase I-III trials is $85.4 million per drug. $80 billion is 937 times $85.4 million. $80 billion is 9,412 times the low estimate of $8.5 million per drug. The U.S. only isn’t the whole global market. Last year drug companies only registered 15 new molecular entities in the U.S. market. Only 6 were considered, by the FDA, to be significantly better than existing drugs. Does this sound as though the current system is working well?

  26. Interesting that you chose Herceptin as an example, because that is probably the best case against your plan that there is. The drug was extremely novel at the time it was developed–even the executives at the time were skeptical. To get the drug approved took not only the identification of the target, but an entirely new approach to inhibiting that target. There was a brand new manufacturing process (culture in CHO cells) and a companion diagnostic that had to be developed. All of these had to be sold to the FDA, which is (appropriately) a VERY conservative body.

    The researchers were driven to MAKE A GOOD DRUG. They almost literally bet the company on the results. That’s because they had faith in their science, and in their ability to follow through.

    Under Sanders’ proposal, their goal would have been to convince a conservative and skeptical committee (only a couple members of whom might have drug development experience) that they were doing something worthy of reward.

    I don’t know how many academic conferences you’ve been to, NIH grants you’ve written or reviewed, or even scientific papers you’ve read. With any of this experience you’d realize that there is often a big disconnect between promise and delivery. And your scheme rewards salesmanship over substance.

    Furthermore, the system rewards the establishment, to the detriment of the newcomers who might actually have the best ideas. The biomedical research establishment is intrinsically risk-averse, and has PROFOUND difficulty recognizing value if it comes from someone new.

    Incidentally, Roche claims in their last annual report that they spend about 20% of sales on R&D (and, contrary to the ill-informed commenters above, much of this research seems to be of a basic nature).

    There are other expenses, too. Manufacturing, legal (including liability insurance), post-approval monitoring, taxes and, yes, marketing, all take a share. (Note that marketing is actually sometimes useful: MDs don’t always keep up on the latest oncology research.) And yes, there is indeed a nice profit, though nowhere near the fraction of the sales price you seem to suggest it is.

    The drugs can be expensive, particularly during the relatively short period when there are no generics. But your solution is to be to take over the industry entirely, and assign it to a committee of 13 appointees. In essence, you want to impose your ideas about how innovation in drug development should work, when you appear to have no actual experience in the process of drug development. And you’re couching this takeover in the benign-sounding terms of a “prize”, as if it’s something that a plucky aviator could achieve. Make no mistake, though. This 3000 word bill is a virtual takeover of the pharmaceutical industry.

    BTW, the reason there is so much misunderstanding about this plan is because so much is left unsaid. The bil leaves almost everything to the discretion of the committee. This is very dangerous. Can you imagine what the prospects would be for, say, a cervical cancer vaccine, during the Bush years? Can you imagine how politicized drug development will become when EVERYTHING rides on the judgement of this committee?

    1. Tom Ames. Here is some data on Herceptin. Herceptin is a good drug, that’s for sure. It is also pretty not not available to most women in the world who need it, because of its high price. The number of patients in the trials to approve the drug were fairly small. Note, the 1998 FDA approval label referred to two trials involving a total of 691 patents for the evaluation of safety and efficacy, and reported on adverse events from a total of 958 patients treated with herceptin. What do you think that cost? $25 million? This drug now generates more than $6 billion per year for Roche, serving only some women who need the drug. What if Roche were to double the price tomorrow, to $200k per treatment? What about $1 million per treatment? What is the best way to reward the invention of a life saving drug? To bargain over the price after the drug is registered, from the only company legally entitled to sell it?

    2. They almost literally bet the company on the results.

      I thought the American way was to absolutely and knowingly bet the company on the results.

      At least, that’s what I hear from the folks who oppose everything Bernie says and stands for.

      I like the idea of beating capitalists with their own stick. Compete or die. Yeah!

  27. The current system is where Drug companies are subsidized by Publicly funded research and who then spend money primarily researching product that don’t cure but addict (require daily doses for the rest of your life). There is absolutely no incentive in the current system for a drug company to actually cure anything.

    Besides the X-Prize style incentives, there is also something to be said for us to figure out how to DRAMATICALLY reduce the time/costs and increase the effectiveness of making sure that drugs are a) not dangerous and b) are effective. If you can reliably do a), you can allow more flexibility of b).

    Big Pharma spends WAY more on advertising and promotion than they do on R&D. So getting the Big Business aspects out of Drugs and Health care would be the fastest way to reduce costs. But you still want to do it in ways that Markets and Public funding/oversite can be synergistic. Oligopolies and Bureaucracies are really one system and the system we have to dissolve.

    1. Robert. While the X-prize approach to awarding prizes is well known, it is not the approach being taken in various medical innovation prize proposals over the past several years, as regards end product rewards.

      As developed from 2002 to 2005, these proposals focus on modifications to a proportional reward system, whereby the starting point is a system that the requirement to be a “winner” is fairly low — the registration of a product, regardless of how useful it is. However, among the several winners, the amount each competitor receives is different.

      Products that are better(do more to change health outcomes), get more of the prize fund money than do products that do less to change health outcomes.

      In this end product prize fund approach, the people running the prize fund do not have to anticipate targets or technical achievements to “win,” but focus on evaluating the evidence of what the winning products have delivered, in terms of benefits, in a competition with well known rules. In a simplified model (more simple than the actual bill), firms would deliver QALY benefits, and the amount of $ reward per QALY would be determined by supply and demand. The more QALYs delivered, the less $ per QALY reward. The Prize Fund can be as big or as small as policy makers want it to be, depending upon how much they value the incremental QALY delivered by changing the size of the prize fund.

      For the open source dividends, or the interim prizes managed by competitive intermediaries, the valuation issues are different.

      The substantial incentives to share and open source research is considered an important feature of the Sanders bills, as regards lowering the costs of drug development, and increasing scientific progress on targets.

  28. Jamielove,

    I’d appreciate some details and citations for your DNDi claims. It looks to me like their trials were for combo therapies of existing medications, that is, not new molecular entities or new targets. Furthermore, have they gotten these drugs approved by the FDA? I imagine you’ll concede that it might be more expensive to get a drug approved in the US than in, say, Brazil.

    Also, you write that “Last year drug companies only registered 15 new molecular entities in the U.S. market. Only 6 were considered, by the FDA, to be significantly better than existing drugs. Does this sound as though the current system is working well?”

    What are you looking for? A higher approval rate? Or more NMEs submitted? If the former, here’s a clue: these are TRIALS. We don’t know how they’ll turn out. Whether they succeed or fail, you have to pay for them though. If its the latter you’re looking for, maybe you don’t comprehend how difficult biomedical research is. A bunch of NMEs are rejected in phase 1 and phase 2. You should be happy for this: it reduces the overall cost of development.

    1. Tom Ames.

      When you look at the costs of drug development, there is plenty of data to look at. Many of the non-profit drug development entities working on “neglected diseases” such as Chagas, or TB, or Malaria, are relatively transparent, and many smaller firms disclose the costs of their trials in their SEC filings. Firms that run clinical trials publish statistics. The various industry backed studies that promote high cost figures for policy reasons have some details that people can examine, and some of the authors are relatively accessible. The amount of data available from the NIH on its grants and from on patient enrollment on specific drugs is pretty good. DNDi has been registering re-purposed or combination products in developing countries, and working on NCEs, and recently they have been presenting data on their costs in public forums, including to the WHO Consultive Expert Working Group on R&D, including for example, slide 7 of this presentation:

      In your comment 69 you ask a question about the FDA approvals. The statistics I quoted were the number of new molecular entities the FDA approved for marketing. (This is not approvals to run trials, but to sell drugs to people). There is a table of this on page 6 of this memo: The criteria for “standard” and “priority” drugs are set out by statute. Whether you look at the percentage of priority approvals, or the number of approals, or the total of both standard and priority approvals, it is pretty clear that despite greater numbers of patents and more and more IPR in developing countries, and higher prices everywhere, productivity has fallen. The current system is extremely costly for consumers, when you compare the cost of patent monopolies to the numbers of new drugs. At some point, the economic cost of the monopoly needs to be examined, and compared to the benefits. Given how expensive the monopoly is, I would expected more in terms of innovations delivered.

      The data from DNDi is one data point that people should look at. Their initial registrations are in developing countries, where the drugs are relevant. The four drugs were:

      * SSG&PM Sodium Stibogluconate & Paromomycin Combination Therapy VL in Africa

      * NECT, Nifurtimox – Eflornithine Co-Administration Stage 2 HAT

      * ASMQ (Malaria) Fixed-Dose Artesunate/Mefloquine

      * ASAQ (Malaria) Fixed-Dose Artesunate/ Amodiaquine

      The fact that they developed these four products for $100 million, plus a pipeline of other products, three of which they plan to register in the next couple of years, is information people should keep in mind, when looking at the $880 billion global market for drugs, of which maybe 75 percent represents a premium due to the various patents, trademark, data exclusivity, orphan drug exclusivity, pediatric exclusivity, patent extension, etc, IPR regimes that are designed to use high prices to induce investments.

      I would agree that people should also look at what Pfizer spends on a new drug for heart disease or cancer, or what the NIH is spending on clinical trials, or how much the private section is actually spending on AIDS related R&D. These are all relevant data points, as are the hazard rates on Phase I, II and III clinical trials, and the per patient costs on those trials. Not only for the products with thousands of patients in clinical trials, but the products that had just a few hundred patients in trials before receiving approval. And also the trials that establish new uses for older drugs.

      There are several reasonable ways to present data on the costs of drug development. One approach is as follows:

      (1) You can present out-of-pocket costs on drugs that succeed and are approved by the FDA, being transparent about the choice of R&D projects/drugs to include or exclude in the survey.

      (2) After doing (1), can can adjust the out-of-pocket costs to reflect the risks of failures, based upon statistical evidence of success/failure rates at each stage of development. You can even throw in capital costs are various discount rates, to see what difference that makes.

      At this point, it is important to not confuse the numbers in (2) with the numbers in (1). The PhRMA numbers of $1.3 billion per drug begin with a sample that explicitly excludes inexpensive development projects, and makes the adjustments in (2). But for many persons who don’t follow this very closely, they assume the $1.3 billion number is an out-of-pocket cost, not adjusted for anything, and they think, hey, its risky and takes time. Well, the $1.3 number already included risk and the time value of money. Plus, it was not a representative sample of all products — it explicitly excluded most lower cost orphan and small company products, where much less was spent.

  29. This comment: “There is absolutely no incentive in the current system for a drug company to actually cure anything.” is too ignorant to warrant a response.

    And gee, why hasn’t anyone else ever thought that it might be a good idea to reduce the costs of figuring out whether a drug is safe and effective or not?

    Trials are expensive because the PUBLIC WANTS IT THAT WAY. They want absolutely safe drugs that are absolutely effective. So in order to bring a drug to market you have to spend a huge amount of money testing many different candidates and then expose yourself to extreme legal liability.

    Oh, wait: the drugs have to be cheap, too. Let’s also make sure they’re cheap.

    There just might be a contradiction here somewhere.

  30. @Kattw: “Krista, my 8 billion figure comes directly from head scientists at Pfizer, Merck, BI, etc. as heard at various lectures. ”

    That’s Pfizer’s total annual R& D budget, not what they spend developing a drug. Cite a name.

    “Similarly, I have no proof that patent extension would cause lower prices. I have only an absurdly good base of logic. Prices are set based upon prospective number of pills to be sold, and time remaining to work off invention debt, and desired profit.”

    That’s absolutely not how it works. Invention debt = sunk cost = irrelevant. Desired profit = infinite.
    The price is set after the marketing wonks determine where the equation ‘price per dose x total doses sold’ is at a maximum for each market. Also, a dollar of revenue 20 years from now is worth bupkus ( well, 26 cents) compared to a dollar in revenue today. And that’s with a conservative discount rate of 7%. Why would a company voluntarily forgo a dollar of revenue today because there is a chance of getting a heavily discounted dollar 20 years from now?

    “Not the actual design of a compound: that IS fairly cheap, and a lot of that DOES come from academia or other publicly funded sources.”

    Drug targets (the molecular buttons designers are trying to find a way to push) are frequently found publicly. Proof of principle compounds to push those buttons are often identified by academia as well, but those usually have as much to do with an actual prescribable drug as a butter knife does with a cordless screwdriver. Actual drugs … maybe 1 in 15 new drugs are designed publicly. The vast majority are designed by private companies.

  31. It’s an interesting idea in the sense that we (taxpayers) are either paying for drug R&D on the back end, through Medicare and other publicly-funded insurance, OR we’re paying the R&D up-front all at once with this prize money. We need more innovative thinking about this problem, but I don’t think this is the answer. At least two problems with this proposal make access to drugs worse for sick people than it already is:

    1) the organizations developing the drugs still have to come up with the development costs, while hoping that they won’t fail (which is *overwhelmingly likely in all drug development*), or be scooped by a competitor, or just not meet the requirements for the prize. This will make an already risk-averse industry even less likely to pursue anything but sure bets, if anything. Rate of new drugs slows dramatically. Very bad for patients with diseases that are not yet curable or easily treated, i.e. who will rely on future innovation. 2) If you don’t trust the boards of pharmaceutical companies to collectively act in patient interests (because you think their incentives are misaligned with), do you trust a much smaller group of government executives with even murkier incentives to get it right?

    I applaud the innovative thinking on this problem. This idea just isn’t the right one for patients.

  32. As someone married to a person working in Big Pharma/Biotech $4 billion just won’t cut it. Most people don’t realize the amount of money that these companies put into R&D. The company my wife works for puts $8 billion dollars a year into research. A $4 billion dollar prize doesn’t even cover their research investment for one year.

    Actually according to the CBO in 2004 the entire industry spent $39B on R&D. So $80B Senator Sanders is talking about may not be far off the current mark. It is an interesting proposal that should be studied closely. Right now because most countries regulate the cost of pharma, and we don’t Americans are picking up most of the cost of R&D in our drug costs.

    By setting up an innovation fund and taking these costs out of the pricing structure, we may be able to induce other countries to put money into the innovation fund.


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