We have strong evidence that the patent system is functioning poorly, with low quality patents, indistinct property boundaries and lots of wasteful litigation. (See Bessen & Meurer’s Patent Failure for a lit review and analysis). In pharmaceuticals, we have ample evidence of drug patent evergreening (see Aaron last week here and here and Scott Hemphill & Bhaven Sampat in the Journal of Health Economics (free version on SSRN)).
For antibiotics, the issues are even worse, and more complex. Infectious disease experts warn that resistance may strand us in a “post-antibiotic” world, with dire effects. Drug companies, owning a time-limited property right, have no economic incentive to manage antibiotics for long-term public health (previous TIE posts summarizing the lit here). Antimicrobial stewardship is important to long-term public health, but to companies it is just another way to depress their sales. Megan reviewed the issues in The Atlantic recently.
One possible way out of this mess is to offer prizes for antibiotic drug development, de-linking the funding for R&D from the market for the pills. (I’ve written on antibiotic prize funds recently with Hollis and Pogge; see also the extensive literature cited therein). On the front end, companies would be rewarded for producing innovative molecules that actually improved human health. No more billion-dollar rewards for clever marketing of me-too drugs. On the back end, companies would also be rewarded for preserving antibiotics for important human needs – the companies would become partners in antimicrobial stewardship rather than opponents.
So the good news. In the PDUFA V reauthorization legislation currently working its way through Congress, a study of drug prize proposals will be undertaken by the National Academies, including antibiotic prize proposals. The language comes from the prize proposals put forward over the last few years by Senator Sanders (I-VT) and excellent work by Jamie Love at KEI:
SEC. 906. INDEPENDENT STUDY ON MEDICAL INNOVATION INDUCEMENT MODEL.
(a) In General.—The Secretary of Health and Human Services shall enter into an agreement with the National Academies to provide expert consultation and conduct a study that evaluates the feasibility and possible consequences of the use of innovation inducement prizes to reward successful medical innovations. Under the agreement, the National Academies shall submit to such Secretary a report on such study not later than 15 months after the date of enactment of this Act.
(1) In general.—The study conducted under subsection (a) shall model at least 3 separate segments on the medical technologies market as candidate targets for the new incentive system and consider different medical innovation inducement prize design issues, including the challenges presented in the implementation of prizes for end products, open source dividend prizes, and prizes for upstream research.
(2) Market segments.—The segments on the medical technologies market that shall be considered under paragraph (1) include—
(A) all pharmaceutical and biologic drugs and vaccines;
(B) drugs and vaccines used solely for the treatment of HIV/AIDS; and
(c) Elements.—The study conducted under subsection (a) shall include consideration of each of the following:
(1) Whether a system of large innovation inducement prizes could work as a replacement for the existing product monopoly/patent-based system, as in effect on the date of enactment of this Act.
(2) How big large innovation prize funds would have to be in order to induce at least as muchresearch and development investment in innovation as is induced under the current system of time-limited market exclusivity, as in effect on the date of enactment of this Act.
(3) Whether a system of large innovation inducement prizes would be more or less expensive than such current system of time-limited market exclusivity, calculated over different time periods.
(4) Whether a system of large innovation inducement prizes would expand access to new products and improve health outcomes.
(5) The type of information and decisionmaking skills that would be necessary to manage endproduct prizes.
(6) Whether there would there be major advantages in rewarding the incremental impact of innovations, as benchmarked against existing products.
(7) How open-source dividend prizes could be managed, and whether such prizes would increase access to knowledge, materials, data and technologies.
(8) Whether a system of competitive intermediaries for interim research prizes would provide an acceptable solution to the valuation challenges for interim prizes.