[Ip-health] Pharma Foxtrot or Citizen's Samba? towards a new biomedical R&D network.

Dean Baker Dean.Baker1 at verizon.net
Fri Oct 23 13:56:47 PDT 2015

Thanks Rachel,

here's the one I wrote for the session.
Hope people find it useful.

*Getting to a Free Market in Prescription Drugs*

*Discussion Comments for /Rethinking the Economics Behind the 
Pharmaceutical Innovation Model/ Conference*

*by Dean Baker, Co-Director, Center for Economic and Policy Research*

With soaring drug prices getting considerable attention both in the 
United States and around the world, this is a great time to put forward 
an alternative model for developing drugs. I would argue that a system 
that relies on direct funding, with all research findings placed in the 
public domain and all patents freely available on a copyleft basis, 
provides the ideal for which we should be striving.

First, we should recognize that the current system in which a patent 
protected price is supposed to be set at a level that allows drug 
companies to recover research costs is an unambiguously terrible way to 
support research. In the United States, where companies are given 
unrestricted monopolies, it allows prices to be set at levels that 
impose enormous strains on whoever ends up being the payer, whether it’s 
the individual patient, a private insurer, or the government. Even in 
countries that control prices in some manner the cost of drugs can still 
be exorbitant.

Since the research is a sunk cost at the point where the drug is sold, 
it makes no sense to prevent people from having access to drugs that are 
essential for their life or health, when they can easily pay the 
marginal cost of producing another batch of pills. The normal argument 
for the virtues of a market does not apply here. The payments for the 
drug depend on the ability of drug companies and the affected population 
to pressure governments and insurers. It is not giving us information on 
how much people value the drug in question.

This is analogous to having firefighters paid by negotiating fees when 
they arrive at the burning house. No one would think this would lead to 
a better payment system for firefighters or to good firefighting and 
prevention services.

A far more efficient and equitable alternative is to have research 
funded upfront by the government. The United States already spends more 
than $30 billion a year financing research through NIH. It could double 
or triple this funding to replace the research now being supported by 
patent monopolies. The additional funding could be paid out to private 
corporations through long-term (e.g. 8-12 year) contracts that are 
subject to competitive bidding. This would avoid most of the concerns 
about the government micromanaging research and political interference. 
It also has the political advantage that research oriented 
pharmaceutical companies would be able to bid for this funding and 
therefore could benefit from this system.[1] <#_ftn1> This payment 
system would be comparable to how the United States pays military 
contractors with the main difference being that all of this work would 
be fully open to the public, whereas there is a real rationale for 
keeping military research secret.

A condition of the funding would be that all research findings are 
posted on the web as soon as practical. This would be a direct contrast 
to the patent system where companies have incentive to disclose as 
little information as possible to avoid helping competitors.In addition, 
all patents would be placed in the public domain on a copyleft basis. 
This means that anyone could freely use the patent as long as any 
subsequent innovation was also kept in the public domain. If a party 
wanted to use a patent for private purposes, they would have to 
negotiate for the rights with the government.

This pattern of research is likely to be far more efficient than 
research done in secret. Recent research found that even very short-term 
patent protection of genes discovered as part of the human genome 
project had a large negative effect on future innovation.[2] <#_ftn2> 
The patents examined in this study lasted for an average of just two 
years. Patents with a 20-year patent life are likely to be far more 
harmful to innovation.

At a more concrete level, the Drugs for Neglected Diseases Initiative 
reported that for 182.5 million euros it was able to develop 6 improved 
treatments and 12 new chemical entities that are still in the 
development pipeline. By comparison, a recent study found that it cost 
the pharmaceutical industry $2.6 billion to develop a single new 
drug,[3] <#_ftn3> almost 15 times the research spending of the DNDI over 
the last decade.

In addition to the likelihood that directly funded research would be 
more efficient on per dollar basis than research supported by patent 
monopolies, there is also the advantage that it removes any direct link 
between profits and the use of the drug. This eliminates the incentive 
for drug companies to promote their drug even in contexts where it may 
not be appropriate. These sales efforts are a source of economic waste 
and can lead to bad health outcomes when pharmaceutical companies 
mislead the public on the safety or effectiveness of their drugs.[4] 

A world in which drugs were sold in a free market would offer enormous 
benefits over the system of patent monopolies. Drugs would be generally 
affordable without much difficulty for people in middle income and rich 
countries. In developing countries, the cost would be a burden that 
could be managed by governments with the assistance of aid organizations.

It is also possible to draw a path to getting to a system of direct 
financing for research. Most research spending goes to clinical trials. 
The government could finance this portion of the research process, while 
still leaving the pre-clinical portion subject to patent financing. 
Companies engaged in publicly financed testing (again operating on 
long-term contracts) could buy up the rights to promising compounds. In 
this case also, the results would be available on the web and the 
patents would be accessible to others on a copyleft basis. When drug 
tests proved successful and went through the FDA approval process, the 
drug would be immediately available as a generic.

As more drugs became available at generics prices, the ability of 
researchers to sell their patents from the preclinical phase at high 
prices would lessen (there would no clear path to high priced drugs), 
which should make it easier politically to shift to a system in which 
the pre-clinical research was publicly funded as well.

This system could be adopted at a global level with countries 
contributing to research through a formula based on income.


[1] <#_ftnref1> A system of direct financing, along with the merits of 
alternatives, is discussed in Baker, Dean, 2004. “Financing Drug 
Research: What Are the Issues?” Washington, DC: Center for Economic and 
Policy Research, 

[2] <#_ftnref2> Williams, Heidi, 2014, “Intellectual Property Rights and 
Innovation: Evidence from the Human Genome Project,” NBER Working Paper 
No. 16213.

[3] <#_ftnref3> This $2.6 billion figure, from a study 
<http://csdd.tufts.edu/news/complete_story/pr_tufts_csdd_2014_cost_study> by 
Tufts University economist Joe DiMasi, is almost certainly a gross 
exaggeration to justify high drug prices, but there is no reason not to 
use it to show the inefficiency of patent-supported research.

[4] <#_ftnref4> Katari, Ravi and Dean Baker, 2015, “Patent Monopolies 
and the Cost of Mismarketing Drugs,” Washington, DC: Center for Economic 
and Policy Research, 

On 10/23/2015 4:17 PM, Rachel Kiddell-Monroe wrote:
> Dear IP-Health
> Next week, the Open Society Foundations is hosting a meeting called
> "Rethinking the economics of pharmaceutical innovation". The meetings will
> be attended by a group of economists, academics and civil society actors.
> OSF asked all the participants to prepare a two pager on what we think is
> wrong with the current system and our thoughts on what to do about it.
> Following Jamie's initiative to share the contributions, here is mine.
> Take care
> Rachel
> Rachel Kiddell-Monroe
> Special Advisor
> Universities Allied for Essential Medicines
> www.uaem.org
> @access2rachel
> "There is no such thing as the "voiceless". There are only the deliberately
> silenced, and the preferably unheard." Arundhati Roy. Make your voice
> heard.
> "When you learn, teach. When you get, give." Maya Angelou
> ----
> *Pharma Foxtrot or Citizen’s Samba? Towards a new biomedical R&D network*
> *Rachel Kiddell-Monroe, October 2015*
> When asked what is wrong with the pharmaceutical model today, like most of
> my colleagues I can quickly run off a list of its problems. I will say that
> the millions of people living without access to lifesaving treatment are
> proof that the system we have today has failed. I can point to the fact it
> has failed because it does not help poor people and only serves the rich. I
> say it is broken because it keeps life saving medicines away from the
> people who need them or simply does not even bother to innovate around the
> diseases from which most people suffer.  I may add that the current system
> is broken because it is inequitable and unjust because it treats medicines
> as a private good that can be monopolised and marketed. I will say a
> patent-based system fails because it actually stifles innovation in the
> biomedical sphere.
> Broken, failed. Like the most people, I easily use all these subjective
> words when talking about the current system. A pharmaceutical executive
> will likely see what I see as failure as great success. And when I look at
> the recent history of biomedical R&D, I do have to marvel at how successful
> the current system has been. I have to acknowledge that the system we have
> today, created by some visionary pharmaceutical company executives who
> pushed for a monopoly-based profit based system enshrined in TRIPs, is
> functioning exactly how it was always intended to function. It may even be
> more successful than those executives ever dreamt. Their system has proven
> to be incredibly resilient to attack, absorbing and incorporating the
> tweaks and challenges thrown at it and carrying on business as usual. The
> recent Trans-Pacific Partnership Agreement talks bring this reality into
> stark relief.
> I now realise I have been wrong to keep referring to the system as broken
> or failed. Not only is the system neither, but by constantly reacting to
> the story set up by pharmaceutical companies since the 1980s, I am dancing
> the pharma foxtrot, following their lead. I unwittingly give credit to the
> story that that tells us how medicines are a market commodity like DVDs or
> cars; that we need patents to innovate new medicines or else companies have
> no incentive to develop new drugs; that while patents create high prices,
> ultimately this is to the benefit of patients because only companies can
> take the risk to produce medicines, which they do for the good of society
> and their shareholders without whom they could not do what they do. This is
> the story that we as an access community constantly try to refute, reject
> and correct. But like all good stories, whenever we come up with a good
> argument, the story absorbs it, coopts our language and carries on
> unchanged.
> We need a counter story.  We need to stop saying No all the time.  We need
> something to say Yes to - we need to stop dancing the pharma foxtrot and
> start a citizen’s samba, a dance that quickens the pace and out-dances the
> other.  In this way we become the leaders and the pharmaceutical industry
> has to keep time with us, not the other way around. We need to yell a
> resounding Yes to a shared ambition for a biomedical R&D approach that
> ensures that all people can access the medicines they need not only to
> survive but also to improve their quality of life. This ability (or right)
> is rooted in the philosophy that health is a public good and that all
> people have a right to that public good. Serving people with medical
> treatment needs will be the driving force of that model and medicines will
> be researched and developed according to the needs of those patients.   My
> dream is of a public innovation network that works with patients,
> researchers, developers and treatment providers to respond to needs
> appropriately, effectively and in a timely way.  This network of
> initiatives, whereby profit becomes relegated to a modest by-product of the
> activity rather than a deliberate goal, is driven by human health and
> welfare not profit.
> There are initiatives out there trying to address the problem and which
> have even begun to provide the elements of a new story. At UAEM, we
> developed a mapping of those ‘alternative’ R&D initiatives.  Many of the 81
> initiatives we included are direct responses to one or more ‘failings’ of
> the system. They begin from the premise that the system is broken and that
> they will fix a part of it. While undoubtedly going in the right direction,
> what we have now is a landscape of fragmented initiatives that provide a
> temporary or partial fix. Ideally, these initiatives would complement each
> other but in reality the lack of coordination may force them to compete
> with each other to attract financing and political support.
> And so again we fall into the same old rhythm of perpetuating a story
> created by the drive for corporate profit. This fragmented approach does
> not give us something to say Yes to.  The initiatives have given us
> essential elements of the story we need to create – principles like
> de-linkage, openness, transparency, collaboration and partnership.   But we
> have not yet fully adopted a compelling new narrative or frame around
> public health goods, health outcomes and success for people.
> We need a place to start. A practical step would be to provide a new frame
> for all those alternative initiatives that we mapped at UAEM. Instead of
> seeing them as responses to a failed system, we need to reframe them as
> building blocks of a new system of biomedical R&D. By setting that new
> frame, we can then analyse the existing or proposed initiatives under a new
> light, extracting the elements that fit the new frame and rejecting those
> that do not. We can look at how they connect (or not) or how they could
> connect. This can give us the starting point for a blueprint of what a new
> biomedical R&D network should look like, what it should contain and what it
> should not. We can highlight the gaps and the challenges that still need to
> be addressed.
> To make this start, I believe we have to adopt five golden rules:
> *- Think beyond neoliberal economics.* We need to look to a new governance
> model that refutes the obsession with growth and seeks out the sustainable
> ways of achieving happy healthy societies living within their limits
> together.
> *- Turn away from the extractive mindset.* We need to start seeing
> biomedical R&D as a closed integrative loop instead of linear approach with
> a constant need for heavy inputs to compensate the massive extraction of
> outputs not connected with the needs of patients.
> *- Stop obsessing about how to finance R&D*. Staying in the ‘but how to
> finance it?’ prevents us from thinking outside the sandbox. Instead of the
> current money default, let’s start by what we want. And, quite honestly, I
> do not believe there is a lack of money to make drugs for the majority of
> the world.  Like food, I think it is a question of how we choose to
> distribute the resources we have.
> *- Recognise that we are at a tipping point*. It is no coincidence that
> ethical approach to climate and business and global health are occurring
> now.  It is not just because we see the damage we have and are causing in
> all walks of life but also because youth want change.  As Singer points out
> we are entering an age of ‘effective altruism’ where the members of the
> generation coming of age in this millennium are more interested in having
> an impact than in making money for its own sake. We need to tap into this
> demand for change from the ground up and feed the demand emerging in rich
> and poor countries alike. To gain political and social capital, we need to
> inclusive participatory approach that makes sense in terms of equity and
> justice, and which resonates with the public and allows them to appropriate
> it as their own cause.
> *- Think in terms of nodal networks and not systems.* Networks or nodal
> concepts of collaboration and openness should replace traditionally
> system-based concepts of closed-ness and hierarchy. Using this approach, we
> can appreciate, harness and expand on the energy and thought put into the
> alternative initiatives by providing a new interactive and innovative
> landscape to anchor their existence.
> To end, I have told you my big, beautiful dream that I know many of us
> share. Sometimes, in trying to be “pragmatic” and “realistic”, we do not
> allow ourselves to believe in the dream. We keep it as a utopia when in
> fact we should be working to anchor it in today and tomorrow. I am
> convinced we can build a totally new approach the goal of which is not to
> eliminate what exists, but rather provide a new approach based on
> principles of justice and equity that will become the way to address the
> needs of the majority of the world. In time, the existing profit model will
> wither as people worldwide see that the new approach is the one that
> addresses their needs and values.  They will be the ones who force their
> governments to work with a new attitude.  We will write a new story of
> biomedical R&D. This is not just a fun idea – this is fundamental issue of
> justice and development and our vision of a world that is within our reach.
> *References, Inspiration and Ideas*
> Naomi Klein “This Changes Everything: Capitalism v Climate” Simon and
> Schuster, 2014
> George Lakoff “Don't Think of an Elephant! How democrats and progressives
> can win: know your values and frame the debate” Chelsea Green Publishing,
> Sept 2014
> Malcolm Gladwell “The Tipping Point: how little things can make a big
> difference”  Little Brown and Company, 2002
> Burris, Scott and Drahos, Peter and Shearing, Clifford “Nodal Governance.”
> Australian Journal of Legal Philosophy, Vol. 30, 2005. Available at SSRN:
> http://ssrn.com/abstract=760928
> Peter Singer “After VEW: Ethical Business and the question of honesty”
> Globe and Mail, Business Report, October 13, 2015.
> Greenburg, Kiddell-Monroe, Basey (October 2015) A mapping of alternate R&D
> initiatives (draft)
> _______________________________________________
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Dean Baker (baker at cepr.net)
Center for Economic and Policy Research 1611 Connecticut Ave., NW
Washington, DC 20009
202-293-5380 (ext 114)
202-332-5218 (H)

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