• Delinkage

    The Atlantic has a story out on delinkage, an alternative model for recovering R&D costs in drugs & devices. Delinkage relies on prizes and grants instead of patent-protected sales above marginal cost. For the definitive background on prize-based alternatives to intellectual property rights, see Jamie Love’s page.

    For many goods and services, relying on patents and market prices might be a great outcome. For prescription drugs, however, the “market” rarely sets prices, at least in countries with government-funded reimbursement systems. Access is another salient issue. We might be fine with patents raising the price of an iPhone 5 to be beyond the reach of the lowest income quartile (for example), but that result seems unacceptable when the drug is lifesaving and is priced beyond the reach of several billion people. Differential pricing theoretically addresses some of these concerns, but has been very challenging in practice.

    One delinkage proposal is the R&D Treat proposal floated at WHO during the last few years, coming from the CEWG process. The Atlantic article describes the strident opposition to the proposal from the Obama Administration, which seems surprising. Some major pharmaceutical companies (such as GSK) publicly support delinkage, while most do not.

    Several other delinkage proposals were discussed in late February at an FDA conference at the Brookings Institute, all focused on antibiotics. As I’ve written with Aaron Kesselheim (in Health Affairs and the Yale JHPLE), antibiotics might be a particularly apt drug class to test the delinkage concept. One model (with Thomas Pogge & Aidan Hollis) is the antibiotic health impact fund, paying annual prizes to the patent holder over 10 years for the actual health impact of the drug around the world. For the first time, companies would have a financial incentive to get the drug to the sickest people able to benefit the most at an affordable price instead of overmarketing a precious exhaustible resource. Another model is the Strategic Antimicrobial Reserve, paying a company NOT to market a particularly valuable antibiotic, saving it for a time of greater need. A third might be to modify antibiotic reimbursement away from unit sales (which drive resistance) through payer-based models.

    Prior TIE posts on antibiotics here.


    • My understanding is that the government has the authority to eminent domain patents in the same way it can eminent domain land. Since eminent domain seeks to give the seller the relevant fair market price for their property (whether or not such a market actually exists), this theoretically shouldn’t discourage R&D as long as we get the price right. In fact, by releasing “gridlock” patents into the public domain, eminent domain should actually increase innovation (recent advances in experimental Alzheimer’s treatment come to mind).

      The advantage of eminent domain over other reform proposals is that while we’d need congress to approve budget authority, no other legal changes are needed–it works within the current framework of patent law.

    • In patents, the eminent domain process is called “compulsory licensing.” The US has used it many times in certain industries and as a remedy for anticompetitive conduct.

      All of the reform proposals operate in this framework, but generally as a voluntary choice for the companies.

      I don’t see the advantages of a completely non-voluntary system.

    • My hobby is investing (and FWIW, I own a couple of big pharma stocks). As an investor, I look for companies with durable competitive advantages, and drug companies as a class tend to have very durable advantages over other companies. After all, the royalty system we have now essentially guarantees them high profits for quite some time. And of course they can evergreen their drugs (make very minor alterations to the formula and re-patent it).

      If we were do do delinkage, I would have to think it would be very disruptive to the industry. They would want very, very large prizes to compensate. They would probably fight to preserve some sort of mechanism for evergreening. They would probably fight the whole thing tooth and nail.

      You’d probably eventually see the manufacturers split into research firms and manufacturing firms. The latter would be a commodity industry, basically.

      I think that delinkage would be great public policy, and that we should do it. I’m just saying that the industry will treat this as an existential threat.