"There are only two ways of telling the complete truth—anonymously and posthumously."Thomas Sowell

Tuesday, October 30, 2007

Is There A Prize For Stupidity?

It sounds so simple. Eliminate patents and exclusivity for new pharmaceuticals, substitute a system of government-determined prizes for innovation instead, and presto! We can preserve incentives for research and development investment in new and improved medicines, while avoiding the high prices attendant upon the patent-protected monopoly positions of drug innovators.

If only it were that simple in practice. Anything---anything---that government touches becomes politicized, and drug development is no exception. Under a proposal offered by Senator Bernie Sanders (I-Pyongyang), new drugs would be approved by the FDA and patented. But exclusivity would be a thing of the past; instead, a government board would dole out prize dollars from a fund in accordance with a list of criteria, the latter obviously subject to changes driven by Congressional whim. The criteria would include: the number of patients who would benefit from a new drug, the extra benefit compared to existing drugs, and the degree to which a drug is targeted to "vulnerable" populations, global infections, or neglected diseases.

So: No openings there for politicization of drug development, nosiree. Let's see. Who can determine, ex ante, the number of patients who would benefit from a drug? How would the extra benefit be predicted? Ex ante! What is a "vulnerable" population, and how big is it? Ad infinitum.

Follow-on drugs would get smaller prizes, apparently regardless of how much better their effects are compared to the original. Thus would the "me-too" principle be enshrined in federal law. Who would appoint the Board? How politicized would it be? And since no one product could get more than 5 percent of the fund, can it possibly be the case that the one-time prize would equal the present value of the stream of returns from a blockbuster drug?

These problems, and many more, are so obvious that it is easy to conclude that the real objective is an end to patent protection and temporary monopoly pricing, and thus a reduction in government drug spending. The obvious adverse effects on future drug development in terms of distortion and reduced returns? That's someone else's problem. Specifically, future patients, and to a far lesser degree, future policymakers. The current system, whatever its distortions and rigidities, at least is driven by market forces to some substantial degree, a highly useful condition not to be discarded too lightly.

[cross-posted from www.medicalprogresstoday.com/blog/]

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