Fairer Returns on Public Investments

The US government has a strong track record of funding innovative health technologies, including the Human Genome Project, the Epi-Pen, prescription drugs, and lifesaving vaccines.

In “ARPA-H Could Offer Taxpayers a Fairer Shake” (Issues, Summer 2023), Travis Whitfill and Mariana Mazzucato accurately describe three strategies for how the Advanced Research Project Agency for Health (ARPA-H) could structure its grant program to ensure that taxpayers receive a fairer return for their high-risk public investments in research and development to solve society’s most pressing health challenges. One of their core ideas is repurposing a successful venture capital model of converting early-stage investments into equity ownership if a product progresses successfully in the development process.

As patients face challenges in accessing affordable prescription drugs and health technologies, we believe it is imperative for policymakers and ARPA-H leaders to address two fundamental questions: How does the proposed grant program strategy directly help patients, and how will ARPA-H (or any government agency) implement and enforce this specific strategy?

The first question concerns what patients ultimately care about—how will this policy impact them and their loved ones? For example, if the government receives equity ownership in a successful company that generates revenue for the US Treasury, that has limited direct benefit for a family that cannot afford the health technology.

There should be a strong emphasis that all patients, regardless of their demographic background or insurance status, can access innovative health technologies developed with public funding at a fair price. For example, in September 2023 the Biden administration announced a $326 million contract with Regeneron to develop a monoclonal antibody for COVID-19 prevention. This contract included a pricing provision that requires the list price in the United States to be equal to or lower than the price in other major countries. Maintaining this focus will lead policymakers to address how we pay for these health technologies and consider practical steps to achieve equitable access. That may include price negotiation or reinvesting sales revenue directly into public health and the social determinants of health.

The effectiveness of any policy depends strongly on its implementation and enforcement. As Whitfill and Mazzucato mention, the US government has the legal authority to seek lower prescription drug prices through the Bayh-Dole Act for inventions with federally funded patents. However, the National Institutes of Health, which houses ARPA-H as an independent agency, has refused to exercise its license or other statutory powers, most recently with enzalutamide (Xtandi), a prostate cancer drug.

The government also has the existing legal authority under 28 US Code §1498 to make or use a patent-protected product while giving the patent owners “reasonable and entire compensation” when doing so, but it has not implemented this policy in the case of prescription drugs for many decades.

It is no secret that corporations in the US pharmaceutical market are incentivized by various forces to pursue profit maximization. In the case of public funding to support pharmaceutical innovation, we need to ensure that when taxpayers de-risk research and development, they should also share more directly in the financial benefits of that investment.

Hussain Lalani

Aaron S. Kesselheim

Travis Whitfill and Mariana Mazzucato make a case that demands the attention of both leaders of the Advanced Research Project Agency for Health (ARPA-H) and policymakers: the agency’s innovation must focus not only on technology but also finance. Breaking from decades of public finance for science and technology with few strings attached, new policy-thinking is needed, they argue, if taxpayers are to get a dynamic and fair return on their ARPA-H investments. To pursue this goal, the authors make three promising proposals: capturing returns through public sector equity, curbing shareholder profiteering by promoting reinvestment in innovation, and setting conditions for access and affordability.

As the technology scholar Bhaven N. Sampath chronicled in Issues in 2020, however, debates over the structure of public financing for scientific research and development have been around since the dawn of the post-war era. But amid reassessments of long-standing orthodoxy about public and private roles in innovation, Whitfill and Mazzucato’s argument lands in at least two intriguing streams of policy rethinking.

First, debates over ARPA-H’s design could connect biomedical R&D policy to the wider “industrial strategy” paradigm being shaped across spheres of technology, from semiconductors to green energy. Passage of the CHIPS and Science Act, the Inflation Reduction Act, and the Bipartisan Infrastructure Deal has invigorated government efforts to shift from a laissez-faire posture to proactively shape markets in pursuit of specific national security, economic, and social goals. Yet biomedical research has been noticeably absent from these policy discussions, perhaps in part because of the strong grip of vested interests and narratives about the division of labor between government and industry. Seeing ARPA-H through this industrial strategy lens could instead invite a wider set of fresh proposals about its design and implementation.

Second, bringing an industrial strategy view to ARPA-H would take advantage of new momentum to reconfigure government’s relationship with the biopharmaceutical industry, which has recently focused on drug pricing. The introduction of Medicare drug pricing negotiation in the Inflation Reduction Act for a limited set of drugs is a landmark measure for pharmaceutical affordability, yet it directs government policy to ex-post negotiations after an innovation has been developed. If done right, the agency’s investments would “crowd in” the right kind of patient, private capital with ex-ante conditions described by Mazzucato and Whitfill. In the process, ARPA-H could serve as an unprecedented “public option” for biomedical innovation, building public capacity for later stages of R&D prioritized for achieving public health goals.

Whether the authors’ ideas will find traction, however, remains uncertain. Why might change happen now, decades after the initial postwar debates settled into contemporary orthodoxies? Beyond the nascent rethinking of the prevailing neoliberal economic paradigm in policy circles, a critical factor might well be the evolution of a two-decade-old network of smart and strategic lawyers, organizers, and patient groups that comprise the “access to medicines” movements. These movements are pushing for bold changes across multiple domains, including better patenting and licensing practices, public manufacturing, and globally equitable technology transfer. Ultimately, ARPA-H’s success may well rest on citizen-led action that helps decisionmakers understand the stakes of doing public enterprise differently.

Victor Roy

Travis Whitfill and Mariana Mazzucato’s proposal to utilize the new Advanced Research Project Agency for Health (ARPA-H) to stimulate innovation in pharmaceuticals while reducing the net costs to taxpayers is very important and welcome.

Innovation can indeed provide major benefits and is greatly stimulated by the opportunity to make profits. Yet pharmaceuticals (including vaccines and medical devices) are unlike most other products, even basics such as food and clothing. Their primary aim is not to increase people’s pleasure, as with better tasting food or more stylish clothing, but to improve their health and longevity. Also, the need for and choice of medications is usually determined not by patients but by their physicians.

Another major difference is that the National Institutes of Health and related agencies—that is, taxpayers—finance much of basic medical research. In addition, when patients use medical products, most costs are usually borne not by them but by members of the public (who support public insurance) or by other insurance holders (whose premiums are raised to cover the costs of expensive products). Furthermore, pharmaceuticals are protected from competition by patents, which are manipulated to extend for many years. Pharmaceutical companies should not, therefore, be treated like other private enterprises and be permitted to make huge profits at the expense of the public and patients.

In Whitfill and Mazzucato’s proposal, public monies provided to private companies and researchers would become equity, just like venture capital funds and other private investments, and taxpayers would thus become shareholders in the pharmaceutical companies. The funding could extend beyond research to clinical trials and even marketing and patient follow-up. This would create ongoing public-private collaboration that could reward the taxpayers as well as the companies and their other shareholders. In addition, the new ARPA-H could “encourage or require” companies to reinvest profits into research and development and look for other ways to restrict profit-taking, and could insist on accessible prices for the drugs it helped to finance.

But their proposal’s feasibility and impact are uncertain. To what extent would ARPA-H have to expand its current funding—$1.5 billion in 2023 and $2.5 billion requested for 2024, in contrast to $187 billion spent by the NIH to enable new drug approvals between 2010 and 2019—to make a substantial impact on the development of new, high-value pharmaceuticals? What degree of price and profit restriction would companies be willing to accept? Could the benefit of higher prices to taxpayers as shareholders be used to justify the excessive prices that benefit company executives and other shareholders even more? Should not the burden on those who pay for the pharmaceuticals by financing public and private insurances be taken into account? Finally, would politicians be willing, in the face of fierce lobbying by pharma, to provide ARPA-H with the required funds and authority?

Nonetheless, expanding an already-existing (even if newly created) agency is clearly more feasible than more radical restructuring, such as my colleagues and I have proposed. Stimulating beneficial innovations and reducing, if not eliminating, excessive profits are far better than accepting the status quo. I strongly support, therefore, implementing Whitfill and Mazzucato’s proposal.

Paul Sorum