What we don’t know, and why, about incentives to stimulate biomedical R&D

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This is an essay about strategic ignorance, as regards evidence relevant to policies that cost consumers and taxpayers billions of dollars.

The United States government grants 20 year patents on pharmaceutical drugs, and it also provides a growing number of other non-patent incentives and subsidies to stimulate R&D investments in new medicines. Are these incentives and subsidies necessary or cost effective? How would anyone know?

Here are some of the incentives we offer:

  • Up to five year extensions of patents on pharmaceutical drugs.
  • Five years of exclusive rights to rely up test data used to register new chemical entity pharmaceutical drugs.
  • Three years of exclusive rights to rely up test data used to register uses of pharmaceutical drugs.
  • Twelve years of exclusive rights to rely up test data used to register biologic drugs.
  • Seven years of market exclusivity to sell drug for approved “Orphan” indications.
  • A six month extension of marketing exclusivity for drugs when there are investments in testing of drugs for pediatric uses.
  • A priority review voucher for the registration of drugs to treat certain neglected diseases.

These are among the ways the US taxpayers directly subsidize of biomedical R&D:

  • A 50 percent tax credit for qualifying clinical trials on orphan drug indications.
  • Grants from the FDA to support orphan drug development
  • Direct funding or research by the Biomedical Advanced Research and Development Authority
  • Grants and contracts involving billions of dollars from NIH, CDC, DOE, the Navy and other federal agencies, to develop new drugs and vaccines.

The US government also directly or indirectly pays for many drugs, including, for example:

  • Medicaid
  • Medicare, including Part D
  • The AIDS Drug Assistance Program
  • Veterans and other federally run programs
  • An advanced purchase commitment (APC) for drugs for bio-terrorism.
  • PEPFAR

Collectively, these incentives and funding mechanisms cost consumers and taxpayer billions and billions of dollars.

Here are a few things that the general public and the US government does not know about pharmaceutical drugs:

  • How much money in sales do specific drugs and vaccines earn every year?
  • What are the prices companies charge in different national markets?
  • How much money did companies actually spend on the Phase I, II and III clinical trials used to establish the safety and efficacy of specific products?
  • How much money did the US government spend to subsidize the development of a particular drug or vaccine (including both direct subsidies and orphan drug tax credits)?
  • How costly are patent monopolies to consumers*?
  • How costly are orphan drug monopoly rights to consumers?
  • How costly are the 6 month pediatric exclusivity rights?
  • How costly are test data exclusive rights?
  • What is the market value of the priority review vouchers?
  • What royalties do companies pay on licenses to patents on (specific) government funded inventions?

*including anyone who reimburses or direct pays for the drug, such as employers, taxpayers or anyone else to pays for insurance.

Why are we so ignorant? Are policy makers naturally stupid?

You might ask yourself, why don’t policy makers know this stuff? The short answer is that they are protecting the drug industry, by making sure no one can do the math, and see if the current set of subsidies and incentives are cost effective or even necessary.

Now Congress is considering yet another non-patent monopoly. The GAIN Act would grant developers of new antibiotics an addition five years of monopoly rights. What is the down side of the 5 year monopoly? No one really cares in the Congress…. after all, who pays for these things? You do, as taxpayers and consumers. But members of Congress and their staff just get to rake in more and more campaign contributions from drug companies, or become high paid DC insider lobbyists for drug companies when they leave government payrolls.

Movements for more transparency

For the past 12 years, there have been efforts to get governments to support more transparency of the economic justifications of intellectual property policies. In 2011, the UK published an Independent Review of how the Intellectual Property framework supports growth and innovation. (http://www.ipo.gov.uk/ipreview) This review, commissioned by the Conservative government and undertaken by Ian Hargreaves, made a number of recommendations, including those relating to the need for better evidence to support policies.

Recommendation 2 was:

Recommendation: Evidence.

Government should ensure that development of the IP System is driven as far as possible by objective evidence. Policy should balance measurable economic objectives against social goals and potential benefits for rights holders against impacts on consumers and other interests. These concerns will be of particular importance in assessing future claims to extend rights or in determining desirable limits to rights.

These comments from the Hargreaves report are highly relevant:

2.14 Dealing with these obstacles requires an approach to evidence which: makes the most of the available research where data can be developed; applies the lessons learned in those areas where we do have data to areas where we don’t, in ways which make credible use of economic theory; demands standards of transparency and openness in both methodology and data.

2.15 It also presupposes an institutional environment which encourages the relevant public authorities to build, present and act upon the evidence. This cannot be achieved if relevant institutions of Government lack access to the data upon which corporate lobbying and other positions are constructed. We return to this point later in the Review.

2.16 The Review has found that IP policy has not always been developed in a way consistent with the economic evidence. . . .

As regards medicines in particular, in 2009 there was a proposal at the Pan American Health Organization (PAHO) to recently to hold a meeting on possible global coordination and standards for such transparency. On the PAHO proposal, see:

Much earlier, the 80 member Trans-Atlantic Consumer Dialogue (TACD) issued this resolution:

TRANSPARENCY OF PHARMACEUTICAL ECONOMICS
TACD RESOLUTION HEALTH-6-00 FEBRUARY, 2000

1. TACD recommends the US and the EU governments undertake the following measures:

  • i. Any application for data exclusivity should include a disclosure of the costs of data collection.
  • ii. The EU and the US should require firms that market pharmaceutical drugs in the US or the EU market to disclose, for each product,
    • A. annual global (and national) revenues,
    • B. costs of clinical trials, disaggregated by timing and nature of trial (Phase I, II, III, IV, etc), the number of patents and the duration of the trial,
    • C. when the product involves licenses from third parties, the royalty payments and terms, and
    • D. the role of the government in the development of the drug, including the awarding of grants, cooperative research and development agreements, licenses, tax credits and other subsidies.
  • iii. Governments should publish data detailing the government’s own costs of conducting clinical trials, which can be used as a benchmark for the cost of clinical trials.
  • iv. The government should publish reports detailing public expenditures on the purchase of products developed initially with public funds.

2. TACD recommends that consumers and policy makers obtain better information about pharmaceutical economics. One of the most vexing issues in pharmaceutical policy making is the paucity of data to justify pharmaceutical industry assertions regarding drug development costs, profit margins or other relevant economic data. Governments have been negligent in collecting independent data on pharmaceutical economics. Accurate data on the economics of the pharmaceutical industry are needed to evaluate a wide range of government policies, including, for example:

  • i. patent extensions,
  • ii. pricing,
  • iii. market exclusivity for health registration data,
  • iv. orphan drug market exclusivity,
  • v. compulsory licensing,
  • vi. government technology transfer policies,
  • vii. scope of patents, and
  • viii. taxes.
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