#15: Nationalize Drug Development

While over $300 billion worth of prescription drugs were sold in the U.S. in 2009, the pharmaceutical industry is now bringing fewer new drugs to market each year now than it did in the mid-’90s. Patents for a handful of the most lucrative drugs, such as Lipitor and Plavix, are slated to expire soon, and the major companies don’t have any new blockbuster drugs on the horizon. Meanwhile, pharmaceutical ad spending has eclipsed spending on research and development, according to a 2008 study.

Dean Baker, co-director of the Center for Economic and Policy Research, tells Big Think that the pharmaceutical industry’s misaligned incentives are distorting prices and distorting research priorities. His solution is to nationalize the research and development of all new drugs—which he says can save money and increase both the range of ailments treated and the effectiveness of drugs already in the market.

Baker compares the current patent-protected system to a monopoly, with gross imbalances between the production and retail costs. “You have drugs that might cost four or five dollars to produce per prescription, but sell for well over a hundred dollars per prescription,” Baker says. That consumers often don’t directly see these costs, with third-party providers from insurance to Medicare and Medicaid footing much of the bill, only exacerbates the problem, he says.

Research is also an issue.  Because drug companies conduct the research for a drug’s development, they have incentive to be selective in publication of their trials’ results. “What’s often turned out to be the case is that they report only part of their results,” says Baker.  A recent study of drug trials found that industry-funded trials reported positive outcomes 85 percent of the time, while government-funded trails had similar results only 50 percent of the time.

“The alternative I’m suggesting is you have the public pick up the full cost of research,” says Baker. “The federal government already spends about $30 billion a year on biomedical research through the National Institutes of Health,” he says, “so it’s not unprecedented that the government spend on biomedical research.”

“The idea would be to have the government put aside a pot of money, say somewhere around another $30 billion a year, and sign contracts with a relatively small number of developers for new drugs,” he says.  This would put research broadly under the directive of an oversight body without eliminating the private companies or having the government micromanage drug development. “They would be relatively long-term contracts, say eight-to-ten years,” he says. “After that period they would be subject to renewal, or they could be cut or cut-back, based on the assessment of how good they’ve been.”  This would allow a more directed approach to which ailments and diseases are targeted with new medicine, rather than the current system in which market incentives might lead to drug overlap, he says.

The critical conditions for being awarded a contract in this plan are that the patents and research would be in the public domain, says Baker. “That would eliminate much of the duplicative research,” he says, as well as open up the full extent of research to experts for analysis.  Such open information, he says, could lead to the stronger pairing of patients with the medicine best suited to their age, background and any other medications they are taking.

Takeaway

The U.S. pharmaceutical industry should turn control over to an NIH-like federal body supporting the development of new drugs with open patents and open research. The body would contract development out to private pharmaceutical companies from a $30 billion pool each year—roughly the amount that drug companies spend on advertising and marketing each year now.

Why We Should Reject This

A roadblock to such a plan, says Joel Hay, professor of pharmaceutical economics and policy at the University of Southern California, is that the patent system has been instrumental in biomedical innovation.  “We create more new drugs and more new biomedical innovations in this country under our patent system than any other country in the history of the world,” Hay says.

Nationalizing how new drugs are developed—even in a market as big as the U.S.—potentially hobbles an enterprising system in which companies and investors pursue a range of potential drugs at once.  As for an NIH-like program contracting out research and development instead, Hay says, “I think you have to be careful about setting up huge new government bureaucracy.  I don’t think the government is good enough at picking winners from losers in terms of new technology, in this or any other field.”

Hay suggests as an alternative that the government selectively buy out specific patents from manufacturers of drugs that it deems to be important to the general population—making the drugs available at generic-level cost earlier.

More Resources

— “Outcome Reporting Among Drug Trials Registered in ClinicalTrials.gov.”  A recent report on publication bias toward favorable research among drug companies.

— “The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States.” A report on the amount drug companies spend on promotion and advertising compared with research and development.

— “Selective Publication of Antidepressant Trials and Its Influence on Apparent Efficacy.”  A 2008 report in the New England Journal of Medicine on publication bias in pharmaceutical research.