[Ip-health] Aidan Hollis comment on prize fund approach

[James Love]

http://www.huffingtonpost.com/james-love/6195-a-month-for-
celgen_b_24293.html

This was Aidan Hollis's comment on one critic of the prize fund
approach.   Jamie

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By: AidanHollis on July 03, 2006 at 06:10pm

I wanted to reply to reallygone's post above. A few comments, one by
one. My responses are marked at the beginning with **.

1) it will primarily limit development to the large drug companies
while eliminating smaller innovators.

** This isn't true. In fact, the reverse is true. At the moment, the
large integrated drug companies with marketing departments can push
their own drugs. Under a prize system, marketing will be less
important, which will mean that smaller companies with less marketing
resources will be on a more even playing field.

2) how do you judge a "winner". Is it just because it is
"popular" (breast implants) or because it relieves suffereing? Would
a drug developed for an "orphan disease" ever be a "winner" unless it
could be marketed with relatively high fees for the drug?

** How does anyone judge a winner? Through looking at the therapeutic
impact! This is exactly what insurance companies do today. Some drugs
are not included because they are believed by the insurance company
to be cosmetic, rather than therapeutic. In order to be sold in the
US, a drug has to be declared safe and effective. How does the FDA
determine what is "effective"? By looking to see whether the effect
of the drug is significantly different from placebo. If this can
measured, then the therapeutic effectiveness of a drug can also be
roughly measured. This is exactly what is done by state insurers
which use pharmaco-economic analysis all over the world.

** Orphan drugs present a special problem in any situation. One
approach to dealing with orphan drugs in a prize system would be
having a special supplementary prize available only for drugs serving
a sufficiently small market.

3) By declaring a "winner" you reduce innovation. the cancer drug
referenced becomes the "winner" and so no one else competes to find a
better drug. A drug that becomes a "winner" today, is often one that
identifies a connection between some body function and the disease.
Once the body function has been publicized, various companies compete
with drugs to "perfect" the treatment. Both (or all) charge high
prices and one eventually wins out (or sometimes two or three). In
the "prize" system, if you get a "winner" there is little incentive
for someone else to compete. Can there be two winners for cancer? Or
three? Do you all share in the "cancer" prize (each get a third) or
does cancer win all the prizes and HIV treatment gets little
attention because someone already has the accepted anser for that? Do
you try to perfect the drug if you have "won", or just keep raking in
the prize money when a better solution might be out there? Under the
current system, a company keeps trying to perfect the drug so it can
extend the patents. In the other system, as long as your is the
winner and still being used, there is no incentive to create
"prefect" drug therapies.

** I am not sure what your understanding of a prize system is. I have
proposed a specific implementation of this system which would give
prizes based on the incremental therapeutic impact of a given drug.
The increment would be over all other therapies not relying on a
patent owned by the seller of a given drug. Thus a firm would earn
more money if it improved its own drug, exactly as under the patent
monopoly system. It could also make money by tweaking another firm's
therapy, or by introducing an incrementally improved drug.

4) half the solution is almost as good as the full solution. How do
you reward drug therapies when one drug is not too effective, and a
second drug is only partially effective, but the combination is
wildly useful? What if a new drug replaces one of the older ones in
this arrangement, or a third one is added that improves the therapy?
In such a scenario, calculating who gets what becomes very sticky to
determine and is as much political as scientific.

** This is a good point. Tell me, under the patent monopoly system,
what is the solution to such a situation? How do you think rewards
are determined today? Firms pick prices in a perfectly rational
manner? I appreciate the difficulty of the problems you suggest here.
And I don't want to minimize them. But the standard to judge the
prize system against is not perfection - it is the current market,
which has no good mechanism for dealing with this sort of problem.

5) Do you determine use rate by the number of pills, or the number of
dosages, or what? If it is number of pills, are you rewarded by
developing small dosages so the patients have to take more pills, or
are you rewarded because you have a vareity of dosages? Do you modify
therapies to maximize calculation of "prize money" (take a smaller
pill five times a day vice a larger pill two times a day)?

** An obvious way to do this is to base the share of the reward on
the share of therapeutic benefit created by all drugs in the system.
Then there is no benefit from 5 pills instead of 2.

The problem with a "prize" systems is that you then get drug
companies to compete by gaming the system as opposed to developing
treatments and therapies. What gets you more "prizes", a good drug,
and a new therapy regimine? Do companies dilute their prize money by
combining with another company to join two drugs to produce a single
pill, or do they benefit more by each producing their own pill and
having patients take one from each comapny?

** If the system is geared to rewarding firms that produce
innovations which improve human health, then while there may be some
gaming, the firms that do the most to improve human health will be
rewarded. All systems are subject to gaming. But our current patent
monopoly system is not even geared to maximizing health, even if
firms don't game it.

In theory, your proposal seems like it might be worthwhile. But like
many proposals, there all kinds of hidden "unintended consequences"
that will influence their efficacy.

**So maybe we should think seriously about this system. Let's not
just assume that it is not worthwhile from a five minute study. For
some more resources on this, see
http://econ.ucalgary.ca/fac-files/ah/drugprizes.htm...

By: AidanHollis on July 03, 2006 at 06:10pm

---------------------------------
James Love, CPTech / www.cptech.org / mailto:james.love@cptech.org /
tel. +1.202.332.2670 / mobile +1.202.361.3040

"If everyone thinks the same: No one thinks."  Bill Walton