[Ip-health] Modeling prize fund rewards

[James Love]

http://www.cptech.org/blogs/drugdevelopment/2006/07/modeling-prize-
fund-rewards.html

Drug Development

Modeling prize fund rewards

Friday, July 07, 2006
James Packard Love

As a general issue, I an not too keen on prize fund approaches for
medicines that focus too narrowly on a specific disease or medical
outcome. I think that a broader set of targets and more flexability
in terms of earning participation in the rewards is quite important,
given the stochastic nature of the R&D process. This note looks at a
different issue, the way you structure rewards in different cases.

Aidan Hollis has emphasized the potential role of Quality Adjusted
Life Years (QALYs), as a basis for rewards in a prize fund system. I
have suggested several times that rewards should not be simple linear
multiples of QALYs, as the costs of drug development are insensitive
to population size, and high income societies also have strong
willingness to pay for inventions that serve small client
populations. There are other issues that are important also, such as
the importance of developing medicines like antibiotics or medicines
used in stockpiles for emergencies, where immediate usage is not the
objective, but the medicine is desired as a back-up in cases of
resistance, or for emergency use or other contingencies. There are
separate issues associated with development of medicines for certain
global health problems, like malaria, Chagas disease or visceral
leishmaniasis.

These are among the reasons that HR 417 does not mandate a simple
reward = QALY system, leaving the actual reward structure up to the
managers of the Fund, with a flexiable legal structure that allows
some learning by doing.

In thinking about the structure of rewards from a fixed prize fund,
such as the one envisioned by the 2005 proposal for the Medical
Innovation Prize Fund (HR 417), one can propose various ways of
modeling the rewards.

If the rewards are to be based upon the incremental benefits of new
(or improved) products, we have to identify the things we value.

One thing we want are improved health outcomes, as measures for
example by QALYs. And while we certainly value more QALYs than less
QALYs, it is not necessarily optimal to have a linear reward
structure. One can imagine, for example, that the rewards for QALYs
should follow a simple decay function, such as:

Reward = a + b * ( QALYs ^ k ) ,

where k (less than 1) is the decay parameter, and a and b are
parameters that reflect the fixed and variable value of new products,
both determined within the context of a budget constraint.

Products with larger populations (or greater benefits per patient)
would receive more, but less on the margin. It could or could not
also be combined with the notions of set-asides for orphan (rare)
diseases (or other priorities) that is now part of HR 417.

One can also imagine different values for the parameter "a,"
depending upon the nature of the new product. For example -- the
degree to which the new product itself represents an improvement over
existing medicines, regardless of the number of patients, such as the
current FDA S and P catagories, or even the catagory for products
used to treat severe illnesses.

This is fairly simple, but I present it as an initial illustration of
how one might go beyone the reward = QALY approach. I'll return to
this later, with a number of other approaches, after a bit deeper
look at different ways of modeling efficient reward systems.

In the case of antibiotics that are best used in case of failures of
first line regimes, it seems important to think about rewards not
tied to current usage of the new products. Use of the current stock
of antibiotics can be modeled as a depletion of a resource, and the
new antibiotics as replenishment.


In the case of a medicine to be used for a stockpile for a low
probability event, such as a bird flu pandemic, SARS, or a bio-
terrorism attack, one could imagine different approaches for
medicines that have another use, such as Tamiflu, and medicines that
would only be used for the low probability event (a vaccine for Bird
Flu or Anthrax). I have suggested elsewhere that in the first case,
the reward for the stockpiled products should be contingent upon
actual use. But in the second case, methods of valuing options would
seem more appropriate.


---------------------------------
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