“Can you respond to this tripe?” asked one of the emails that sent along this article in The Atlantic. I responded that I was planning to, but that things were made more complicated by my being extensively quoted in said tripe. Anyway, here goes.
The article, by Brian Till of the New America Foundation, seems somewhat confused, and is written in a confusing manner. The title is “How Drug Companies Keep Medicine Out of Reach”, but the focus is on neglected tropical diseases, not all medicine. Well, the focus is actually on a contested WHO treaty. But the focus is also on the idea of using prizes to fund research, and on the patent system. And the focus is on the general idea of “delinking” R&D from sales in the drug business. Confocal prose not having been perfected yet, this makes the whole piece a difficult read, because no matter which of these ideas you’re waiting to hear about, you end up having a long wait while you work your way through the other stuff. There are any number of sentences in this piece that reference “the idea” and its effects, but there is no sentence that begins with “Here’s the idea”
I’ll summarize: the WHO treaty in question is as yet formless. There is no defined treaty to be debated; one of the article’s contentions is that the US has blocked things from even getting that far. But the general idea is that signatory states would commit to spending 0.01% of GDP on neglected diseases each year. Where this money goes is not clear. Grants to academia? Setting up new institutes? Incentives to commercial companies? And how the contributions from various countries are to be managed is not clear, either: should Angola (for example) pool its contributions with other countries (or send them somewhere else outright), or are they interested in setting up their own Angolan Institute of Tropical Disease Research?
The fuzziness continues. You will read and read through the article trying to figure out what happens next. The “delinking” idea comes in as a key part of the proposed treaty negotiations, with the reward for discovery of a tropical disease treatment coming from a prize for its development, rather than patent exclusivity. But where that money comes from (the GDP-linked contributions?) is unclear. Who sets the prize levels, at what point the money is awarded, who it goes to: hard to say.
And the “Who it goes to” question is a real one, because the article says that another part of the treaty would be a push for open-source discovery on these diseases (Matt Todd’s malaria efforts at Sydney are cited). This, though, is to a great extent a whole different question than the source-of-funds one, or the how-the-prizes-work one. Collaboration on this scale is not easy to manage (although it might well be desirable) and it can end up replacing the inefficiencies of the marketplace with entirely new inefficiencies all its own. The research-prize idea seems to me to be a poor fit for the open-collaboration model, too: if you’re putting up a prize, you’re saying that competition between different groups will spur them on, which is why you’re offering something of real value to whoever finishes first and/or best. But if it’s a huge open-access collaboration, how do you split up the prize, exactly?
At some point, the article’s discussion of delinking R&D and the problems with the current patent model spread fuzzily outside the bounds of tropical diseases (where there really is a market failure, I’d say) and start heading off into drug discovery in general. And that’s where my quotes start showing up. The author did interview me by phone, and we had a good discussion. I’d like to think that I helped emphasize that when we in the drug business say that drug discovery is hard, that we’re not just putting on a show for the crowd.
But there’s an awful lot of “Gosh, it’s so cheap to make these drugs, why are they so expensive?” in this piece. To be fair, Till does mention that drug discovery is an expensive and risky undertaking, but I’m not sure that someone reading the article will quite take on board how expensive and how risky it is, and what the implications are. There’s also a lot of criticism of drug companies for pricing their products at “what the market will bear”, rather than as some percentage of what it cost to discover or make them. This is a form of economics I’ve criticized many times here, and I won’t go into all the arguments again – but I will ask:what other products are priced in such a manner? Other than what customers will pay for them? Implicit in these arguments is the idea that there’s some sort of reasonable, gentlemanly profit that won’t offend anyone’s sensibilities, while grasping for more than that is just something that shouldn’t be allowed. But just try to run an R&D-driven business on that concept. I mean, the article itself details the trouble that Eli Lilly, AstraZeneca, and others are facing with their patent expirations. What sort of trouble would they be in if they’d said “No, no, we shouldn’t make such profits off our patented drugs. That would be indecent.” Even with those massive profits, they’re in trouble.
And that brings up another point: we also get the “Drug companies only spend X pennies per dollar on R&D”. That’s the usual response to pointing out situations like Lilly’s; that they took the money and spent it on fleets of yachts or something. The figure given in the article is 16 cents per dollar of revenue, and it’s prefaced by an “only”. Only? Here, go look at different industries, around the world, and find one that spends more. By any industrial standard, we are plowing massive amounts back into the labs. I know that I complain about companies doing things like stock buybacks, but that’s a complaint at the margin of what is already pretty impressive spending.
To finish up, here’s one of the places I’m quoted in the article:
I asked Derek Lowe, the chemist and blogger, for his thoughts on the principle of delinking R&D from the actual manufacture of drugs, and why he thought the industry, facing such a daunting outlook, would reject an idea that could turn fallow fields of research on neglected diseases into profitable ones. “I really think it could be viable,” he said. “I would like to see it given a real trial, and neglected diseases might be the place to do it. As it is, we really already kind of have a prize model in the developed countries, market exclusivity. But, at the same time, you could look at it and it will say, ‘You will only make this amount of money and not one penny more by curing this tropical disease.’ Their fear probably is that if that model works great, then we’ll move on to all the other diseases.”
What you’re hearing is my attempt to bring in the real world. I think that prizes are, in fact, a very worthwhile thing to look into for market failures like tropical diseases. There are problems with the idea – for one thing, the prize payoff itself, compared with the time and opportunity cost, is hard to get right – but it’s still definitely worth thinking about. But what I was trying to tell Brian Till was that drug companies would be worried (and rightly) about the extension of this model to all other disease areas. Wrapped up in the idea of a research-prize model is the assumption that someone (a wise committee somewhere) knows just what a particular research result is worth, and can set the payout (and afterwards, the price) accordingly. This is not true.
There’s a follow-on effect. Such a wise committees might possibly feel a bit of political pressure to set those prices down to a level of nice and cheap, the better to make everyone happy. Drug discovery being what it is, it would take some years before all the gears ground to a halt, but I worry that something like this might be the real result. I find my libertarian impulses coming to the fore whenever I think about this situation, and that prompts me to break out an often-used quote from Robert Heinlein:
Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.
This is known as “bad luck.”