[Ip-health] Fortune Magazine on Prizes to reward medical innovation

[Judit Rius Sanjuan]

Find below an article published in the online version of Fortune
Magazine on November 30, 2007 about US Senate bill S.2210, the Medical
Innovation Prize Fund Act.

We welcome press coverage on this important proposal, but also note the
following inaccuracies:

* The Sanders Prize Fund Bill (S.2210) does not give a "one time prize,"
but rather rewards drug developers with a prize once a year for 10
years, based upon the evidence of utilization and efficacy of the
product in each of the 10 years.
* S.2210 would retain the patent system, to establish ownership of
inventions, and such patents would be valuable assets, since they would
establish ownership of the prize money given to drug developers.
* While we agree with S.2210, the bill is authored by Senator Sanders.
* KEI is not "anti-business."  KEI is anti-outdated and anti-consumer
business models, or bad business practices, as are many readers of Fortune.

http://money.cnn.com/2007/11/28/magazines/fortune/simons_patent.fortune/index.htm

A radical plan to lower drug costs
If patents were replaced by government cash grants, market forces would
dramatically lower drug costs, many experts believe. But Big Pharma
isn't having it.
By John Simons <mailto:jsimons@fortunemail.com>, Fortune writer
November 30 2007: 9:53 AM EST

(Fortune) -- What to do about the high cost of drugs? A cadre of
academics and economists has a radical new answer: Take away the
exclusive product patents the government grants a new drug and replace
them with cash awards to the innovating company.

Not surprisingly, this is one prize Big Pharma says it doesn't want.
Even so, the idea of "prizes not patents" is gaining support and
sparking a heated debate over the price of medical innovation.

Here's how the so-called "prizes not patents" scheme would work,
according to its supporters: The federal government would set up an $80
billion innovation fund, and rather than grant exclusive patents,
officials would use the pot of cash to reward each company's new drug
discovery with a one-time prize. Regulators would then take the new
drug's formula and place it in the public domain, where any other
drugmaker can copy it, make a duplicate medicine, and rush it to market.
The hope is that the ensuing market competition would generate
dramatically lower prices for new medications.

Such policy notions would have little traction if not for the
overwhelming feeling that drugs are too costly. Drug treatments are
becoming an increasingly larger part of the U.S. healthcare budget. And
as baby-boomers begin to sign up for Medicare's new prescription drug
benefit, taxpayers and politicians are fretting the costs. Americans
spent $274 billion on prescription drugs in 2006, an increase of 82%
over spending in 2000. Medicine prices have risen faster than the rate
of inflation in each year of this decade.

According to a study by the AARP Policy Institute, the average senior
citizen taking four brand name medications saw a cumulative increase of
$1,461 to fill prescriptions between 2000 and 2006. Reform advocates
fear that increasing costs can limit patients' access to life-saving
drugs. Some of the most expensive drugs, in fact, are those for cancer
treatment.

Moreover, some policymakers believe prizes would solve more than just
high prices. They say the plan would create an incentive for companies
to research and develop medicines diseases that are more prevalent in
developing countries - ailments drugmakers currently considered to be
less lucrative.

If the new patent scheme sounds downright Soviet, that's because it is.
Actually, the old Soviet Union tried awarding prizes for innovation, but
according to most Russian policy experts, the system failed to generate
scientific creativity. Supporters of this new plan point out, however,
that the Soviet's were too stingy, and didn't offer large enough prizes.

The prize plan is gaining new clout in recent months. Nobel laureate
economist Joseph Stiglitz advocated the idea in a recent syndicated
column. "[T]he patent system with all of its distortions has failed in
so many ways," Stiglitz lamented. Last month, Vermont Senator Bernie
Sanders introduced the idea in the form of the Medical Innovation Prize
Act of 2007.

Earlier this month on the presidential campaign trail, John Edwards
promised to make drug patent reform a part of his healthcare agenda. The
former North Carolina senator told a gathering in New Hampshire that the
plan would "create a different dynamic for drug companies and
particularly for breakthrough drugs in big areas like Alzheimer's,
cancer, etc." "We'd offer a cash prize for research and development of
these drugs, but they don't the patent," Edwards explained. "So, we
eliminate the monopoly."

Big drugmakers shudder at the idea of more government involvement in
their business. "A prize system could interrupt the flow of funding
needed to guarantee research success and could inject the government
into decisions about research priorities," says Ken Johnson, senior vice
president of PhRMA, the drug industry's main lobbying organization.
Johnson insists out that the current patent system hardly grants the
lucrative monopolies critics describe.

While it's true, for instance, that patents last 17.5 years, unlike
other industries, drugmakers conduct an average of about 12.5 years of
research on medicines before they can gain FDA approval. That leaves
roughly five years of patent exclusivity for a drug company to recoup
its industry average $800 million investment. "We believe that any
weakening of the current patent system could be potentially devastating
for patients," Johnson says.

The idea of government prizes for drug innovation is the brainchild of
James Love, an economist who is director of Knowledge Ecology
International, a Washington, D.C.-based think tank. Love has made a name
for himself in the nation's capital as a consumer advocate, lobbying and
working to pass legislation in areas including technology, intellectual
property and health care. He is often criticized for being
anti-business, but he believes his prescription for drug companies
couldn't be more pro-industry.

"We're saying we want to give $80 billion a year to biotechs, Big
Pharma," says Love. "Is that really anti-business? To me, it's a
market-oriented alternative to an unproductive, ethically challenged
system. Patients prefer a free market, but they don't like monopolies
where you pay $100,000 a year for cancer medicines."

So where does the $80 billion come from? Love explains that the federal
government spends more than $100 billion each year on pharmaceuticals
via the Medicare prescription drug benefit, the Veterans Administration
and the federal workers insurance plans. He says the prize plan "would
easily pay for itself" with the savings achieved through lower prices
for new drugs.

Under the Sanders bill, which Love co-authored, the innovation fund
would have a board of trustees determining which innovations deserve
prizes. As imagined by Sanders and Love, the board would be comprised of
13 members, including the administrator of the Centers for Medicare and
Medicaid, the commissioner of the FDA, the director of the Centers for
Disease Control and Prevention, nine presidential appointees (three
representatives from the business sector, three private medical
researchers, and three consumer advocates).

For every drug approved by the FDA, the board would determine whether
and in what amount to award it's designers. Award payments could be
staggered over as much as ten years, with no single drug being granted
more than 5% (or $4 billion) of the fund in any given year. An 18%
portion of each year's fund would be set aside to award research in
neglected diseases, AIDS vaccines, and medicines for responding to
bioterrorism.

Love's proposal is grand, but he believes that Big Pharma is facing a
strong headwind as government grapples with ways to pay for its health
programs. "It's either going to be price controls or prizes," he says.
"Prizes are more market driven." Clearly, if industry wants to avoid
this scenario, they had better start fashioning some new ideas of their own.

--
Judit Rius Sanjuan
Attorney
judit.rius@keionline.org

Knowledge Ecology International (KEI)
www.keionline.org / www.cptech.org
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