Making Drugs Affordable
A DISCUSSION OFWhose Drugs Are These?
Read Responses From
In “Whose Drugs Are These?” (Issues, Summer 2010), Bhaven N. Sampat provides an excellent historical tour of ways to think about the development and pricing of prescription medicines. As Making Medicines Affordable, the National Academies report to which we contributed, stated, “drugs that are not affordable are of little value and drugs that do not exist are of no value.”
When the US patent system was refined for prescription drugs in the 1980s, about a third of all drugs were covered by health insurance. Today, that coverage reaches almost 90%. This has rendered irrelevant any thoughts of meaningful market control on drug launch prices and annual price increases. The idea of “what the market will bear” has grown without bounds, since patients with good health insurance coverage have little to no sensitivity to price increases. Patents and health insurance are individually robust ideas but together create complexities we need to diligently manage. We described this as a “clash of the titans” in a 2018 article in Science Translational Medicine.
Every proposed solution tends to advance either the affordability of existing drugs or the availability of new and improved drugs, one at the expense of the other. In these zero-sum games, everything that one side wins on behalf of ensuring drug affordability becomes a loss to the other side keen on ensuring new and improved drug availability. The economic pie is fixed, and the participants try to maximize the size of their slice. We need to transcend this zero-sum dilemma.
Sampat urges a return to proposals offered after World War II by Harley Kilgore, a US senator from West Virginia, to have government directly fund not just the basic research but also the subsequent development necessary for commercialization. Although this seems to run contrary to traditional roles for industry and government in the United States, a striking parallel exists: the development and funding of fighter and bomber aircrafts, and of naval systems ranging from aircraft carriers to river boats. In these procurements, the government specifies minimum performance attributes, funds development at multiple competing firms, and then selects the winning design after a real-life fly-off. Even the production itself can be competed, with purchasing volumes shifting more to those with the best price quotes and quality of previous production.
Novel infections threaten population health and economy in ways similar to or far more significantly than the threat of wars. Thus, establishing a different pathway to at least some of the lifesaving vaccines and therapies has strong merit. With such an approach, as recommended in our National Academies report, the federal government—not companies with the express goal of maximizing profits—would control drug pricing.
Compounding the concern that market forces to control drug prices have nearly vanished, another major issue looms large: US (and international) patent law confers 20-plus years of market exclusivity before drugs and vaccines can be manufactured competitively as generic alternatives. Waiting for 20 years until patents expire cannot have any meaningful value when novel pathogens such as those responsible for COVID-19, Ebola, and Zika convulse global health and economy.
Other options are available to achieve the same result. They include patent auctions, forgivable loans to finance product development (the rate of forgiveness hinging on high production volume and low sales prices), and coinvestment and competitive funding of multiple R&D efforts, so that even with market exclusivity, producers will face meaningful market competition from others. The European Union Malaria Fund (to which we serve as advisors) is just such an effort to encourage the development of highly effective interventions. This approach could readily carry over to COVID-19 and eventually to other novel and reemerging microbial threats.
Charles E. Phelps
Provost and University Professor Emeritus
University of Rochester
Norman R. Augustine Senior Scholar and Senior Director of Programs
National Academy of Engineering
Bhaven N. Sampat’s article could not be more timely. He reviews the World War II era debate around the mechanisms through which publicly funded research would be harnessed for developing useful drugs and other products. The debate was resolved with a system that allowed for private patenting of public research, with few restrictions. This approach was further codified with the 1980 passage of the Bayh-Dole Act.
This outcome has likely stifled progress and raised prices in many areas, but nowhere has the harm been greater than with prescription drugs. Pharmaceutical companies routinely take advantage of publicly financed research to develop drugs for which they then acquire patent monopolies. These monopolies allow them to charge prices that are often more than a hundred times the free market price.
It is now common to see new drugs for cancer or other diseases selling for hundreds of thousands of dollars a year. These high prices not only create problems of affordability but also create perverse incentives. When drug companies can sell drugs at markups of several thousand percent, they have an enormous incentive to misrepresent a drug’s safety and effectiveness. We see this practice all the time, most notably with the opioid crisis, where several major companies are alleged to have concealed evidence on the addictiveness of their drugs in order to increase sales.
The coronavirus pandemic puts the issues of pharmaceutical research in a new light, since the government is very directly and openly involved not only with basic research but also with financing the entire development and testing process. This is most clearly seen in the case of Moderna, a leading contender in the development of a vaccine against the virus.
The government paid Moderna $483 million for its preclinical research, then another $472 million for its Phase 3 trials. It is hard to imagine that this funding did not cover the bulk, if not the entirety of the company’s research expenses. Incredibly, the government is still allowing Moderna to have a patent monopoly that will let it charge prices far above the actual costs of manufacturing and delivering a vaccine.
This would have been a great opportunity to pursue a different path. With the government essentially picking up all R&D costs, it could have insisted that all results be in the public domain so that any vaccines and treatments would be available as generics from the day they are approved. It also could have required that all research be fully open, ideally allowing cooperation with other countries financing research, so that the research could advance as quickly as possible.
Even if the Trump administration did not go the route of openness, we do have this valuable example of the government directly financing research all the way through the testing process. Next time we need to insist that research the government pays for is open, and that the products developed are available as generics as soon as they are approved.
Center for Economic and Policy Research
Bhaven Sampat’s insightful article takes us back to the last time the United States faced an existential threat—World War II—and used science to overcome it. One of the lessons that Americans across the political spectrum learned was that science and technology were important, and that the federal government had a crucial role in sustaining science in order to give rise to valuable and useful technologies.
The two individuals who drove the debate on the government’s role in supporting science and technology, Vannevar Bush and Harley Kilgore, did not agree on how this should be done. The disagreement focused in part on scientific autonomy, but Sampat reminds us that they also disagreed about what to do with patents that arise from federally funded research. Kilgore wanted government ownership and dedication to the public, a half-thought policy that is hard to distinguish from not patenting at all and publishing so no one else can. Bush was highly sophisticated about patents, but acknowledged that there was no consistent policy. The Office of Scientific Research and Development (OSRD), established in 1941, generally allowed companies getting government money for work to retain patent rights, but during the war the default for academic researchers was either government ownership or no patents at all (at least until war’s end, when a spate of patents surfaced that had been kept secret). Bush insisted on government ownership of nuclear technologies, and he remarked in his memoir how he quashed patent rights on some occasions, but he generally favored allowing those using government money to do research to patent their inventions so they would have an incentive to develop them and as a reward for good work and prior investments.
World War II and the COVID-19 pandemic have several things in common: urgency, intense public attention, respect for the expertise housed in the private sector, an unusual spirit of cooperation toward a common goal, and an awareness that unfettered pursuit of profit at public expense probably won’t withstand public pressure under the intense spotlight.
But several things are also different. The National Institutes of Health’s budget is more than a thousand times larger in real terms, and the pharmaceutical, biotechnology, and medical device R&D expenditures larger still. Bush and many of the experts on the OSRD Committee on Medical Research had close and direct ties to companies that would today be considered a conflict of interest. And patenting drugs and medical technologies has become a strong norm, not only in firms but also in academe.
The Bayh-Dole Act of 1980 had two major and salutary effects: it set a default ownership rule, and imposed consistency on an ad hocracy of inconsistent and sometimes incompatible funding agency patent policies. That was good. But it failed to do two truly important things that neither Bush nor Kilgore paid much attention to either, but are crucially important.
First, it failed to allow public accountability after the point of patenting. Licensing and use of federally funded inventions are shrouded in secret licenses, and federal authority to monitor what happens to inventions arising from federal funding is weak. Annual voluntary surveys that fail to distinguish Bayh-Dole patents from other university patents, though laudable and better than nothing, are not a solid foundation for a learning system.
Second, Bayh-Dole failed to distinguish inventions that require the patent incentive to enable postdiscovery investment to achieve broad use through commercialization—think drugs, instruments, and vaccines—from the equally common discoveries and inventions that may reward the research institutions that generated them. But for such platform technologies—recombinant DNA, CRISPR genome editing, and characterization of macromolecules that are the targets for drug discovery, among others—the effect of patents is not to foster broad use but to tax downstream innovation. That may be a good thing, but it may not, and frankly, no one really knows.
The so-called Bayh-Dole 40 movement bloviates with misleading statistics to defend a highly useful but flawed statute. And as Ken Shadlen recently noted in an Issues online exclusive, “To Speed New COVID Vaccines, Look to Patenting,” antipatent critics in their knee-jerk reaction fail to acknowledge that sometimes patents really are useful in getting private investment to produce socially useful goods and services.
So the Bush-Kilgore patent policy debate continues seven decades later, and in a data-free ideological cross fire that pits companies and the patent bar against patent skeptics and those who value access to technology as much or more than profit-fueled innovation. Wouldn’t it be nice if the nation got serious about understanding how to design a system—including government R&D and patent policy—that produces innovation while also ensuring broad access to medical technologies? Making it possible to gather data on licensing patented inventions resulting from government R&D funding would be a good place to start.
School for the Future of Innovation in Society and the Consortium for Science, Policy & Outcomes
Arizona State University