Reforming new drug development

So what to do about the misalignment between incentives under the current drug patenting and licensing regime, and public health? (To summarize recent posts in a pistachio shell, the pharmaceutical industry is motivated solely by profit, the most profitable drugs are not necessarily the ones that contribute the most to population health, and the prices are too high for many people to afford in any case.) It is true that if there were an effective international regime to limit pharmaceutical prices, the investment in new R&D would be severely limited. As Thomas Pogge puts it (Pharmaceutical Patents and Economic Inequality. Health and Human Rights, Dec. 2023):

Universal access to new medicines could be achieved through a global buyers’ alliance—including national health systems and insurers—which would tell each originator how much it can charge various kinds of buyers for its product. Such an alliance could effectively dictate prices, as the originator’s sole alternative would be to take a loss on its entire R&D investment. But such a monopsony would greatly reduce pharmaceutical R&D: investors would not spend billions on developing important new medicines if their return were wholly at that alliance’s discretion. Is there a feasible regime that would ensure the profitability of pharmaceutical R&D without the massive human rights denials entailed by monopoly patents?

 

So yeah, I get that. Fortunately, Pogge has a proposed solution, called the Health Impact Fund.  The basic idea is not complicated. It costs a lot to develop and test new drugs, but the actual cost of manufacturing them once they are approved is generally very low. The idea is that an alliance of governments puts up a big pot of money -- maybe with a contribution by Bill Gates and Warren Buffet and the gang, maybe with some regime of dedicated taxes to keep it going. Pharmaceutical companies can register their investigational new drugs with the fund. They agree that if the drug is approved, they'll sell it at a small markup over the cost of manufacture, but they'll receive payments from the fund proportional to the annual gains in health from the product. 

There are a couple of ways to measure global health impact, which we don't need to go into a lot of detail about here. This would presumably use some version of Quality Adjusted Life Years, which combines gains in life expectancy with gains in quality of life. In any case, this gives the companies an incentive to develop products that will have a big impact on public health but either would not be very profitable -- such as antibiotics -- or would otherwise be sold at a very high price, but would now be affordable. They'd make much of their money from the fund, rather than profit on sales.

Now, there is a lot of controversy about this, a lot having to do with exactly how to make it work, who will run it, how it will make decisions and judgments, yadda yadda. It's radical in that it breaks out of the market system, but on the other hand it doesn't resemble socialism as we normally think of it. The companies are still private, for profit entities, they're still looking to enrich their executives and shareholders -- they just have a different incentive structure. It may seem unlikely to happen given the current squabbling nature of the international community, but that's just one more reason to try to get the world to sing in perfect harmony, as if we didn't have enough reasons already. Anyway, the main point is that we can imagine a better world, if we can get our heads out of the post-industrial capitalist box.

Note: Yes, I do in fact believe that anybody who would even consider voting for Donald Trump is an idiot. Pointing out that there are a lot of idiots is not a refutation,