[Random-bits] Prizes, not prices, to stimulate antibiotic R&D

[James Love]

http://www.scidev.net/en/health/antibiotic-resistance/opinions/

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Wednesday, 26 March 2008
Health: Antibiotic resistance

Prizes, not prices, to stimulate antibiotic R&D

James Love

26 March 2008 | EN

SciDev.Net

With the worldwide growth of resistance, new antibiotics are
increasingly needed. But R&D can be expensive and time-consuming, says
James Love.

Many of the challenges associated with the development of new
antibiotics and vaccines are familiar, and common to other medicines.
Research and development (R&D) is expensive, particularly for clinical
trials involving people, and product development can be a lengthy
process — two unattractive features for most investors, who tend to be
risk-averse.

Investors might also be deterred by patent thickets. Many of the
scientific benefits of R&D, including those generated by failures, are
difficult or impossible to appropriate under patent laws.

Other market failures are associated with antibiotics and vaccines.
Newer antibiotics should be used only when older drugs don't work, which
runs counter to exploiting the temporary patent monopoly. It may take a
particularly long time to evaluate the safety and efficacy of a vaccine,
and the social value may be higher than the monetary value, because of
an opportunity to eradicate an infectious disease or because
vaccinations lower community infection rates.

'Push' and 'pull' mechanisms

Responses by governments to underinvestment in new antibiotics and
vaccines vary, but generally focus on a combination of research grants
and subsidies ('push') and additional incentives for investments in
successful products ('pull').

Public sector and donor investments in antibiotics and vaccines are
enormously important, and are typically in the form of push mechanisms,
such as grants to non-profit drug development partnerships.
Nevertheless, many experts insist that pull factors are still important
in ensuring that development efforts are focused on the projects with
the highest probability of success.

Some pharmaceutical industry lobbyists and academic writers have
suggested that governments could give longer patent protection to
antibiotics to allow the patent owner more time to recover R&D costs.
Others want governments to guarantee high prices for vaccines, or
provide for various systems of cross-subsidies such as transferable
patent extensions that can used to extend monopolies of blockbuster
products like the cholesterol drug atorvastatin.

Although high drug prices have traditionally been the incentive for R&D
investment, there is a growing awareness of the associated problems.
High prices mean many people cannot afford them. In poor countries,
there is a dearth of patented products on the World Health Organization
model essential drugs list. Even in industrialised countries, high
prices also lead to various strategies to limit access, such as limited
insurance coverage for the newest medicines.

Not all medicines are for immediate use: part of any government's health
strategy is stockpiling drugs for health emergencies such as a flu
pandemic. But the high monopoly prices discourage stockpiling of many
important medicines, particularly in poor countries.

The use of high prices as an incentive for investment is also associated
with spending on costly — and sometimes misleading, irrational or
harmful — marketing practices, including cases where the owner of a drug
exploits the monopoly by encouraging the use of medicines even where
they are not appropriate. For example, the drug Vioxx was marketed
widely to patients for whom the risks were too high relative to the
benefits, because the manufacturer wanted to expand sales even when
safer drugs would have been more appropriate. 
This is a particularly important issue for the development of
antibiotics, where there is a strong public health rationale for
restricting access to the newer products in order to avoid drug
resistance.

Finally, using product prices as an incentive leads to too much
investment in new medicines that offer only minor incremental benefits
over existing medicines, while products that open up new paths for
treatment are relatively under-rewarded. 

Ethical dilemmas

For an incentive system that efficiently rewards products that improve
healthcare outcomes, and does not lead to rationing and ethical dilemmas
over access, it is better to use prizes rather than prices.

In theory, prizes can dominate prices in every important policy area
when implemented as part of a scheme that separates the market for
innovation from the market for products.

The World Health Assembly recognised the importance of this concept in
May 2007 when it urged the WHO director-general to encourage the
development of new incentive mechanisms that address "the linkage of the
cost of research and development and the price of medicines."

For antibiotics, a reward system of cash prizes could value new products
using economic models similar to those used to value stock options,
inventories and other financial instruments. A new antibiotic would be
valued not only for its use during the patent term, but as part of an
ongoing portfolio of products needed for new diseases, conditions or
resistance problems that are expected to emerge over time.

Prizes can be paid even in cases where current consumption is zero, or
close to zero, as long as the new product enhances the security and
sustainability of the treatment programme. These pricing models need not
be highly complex. A large but simple cash bonus for the registration
with the US Food and Drug Administration (FDA) of a new antibiotic that
has a useful drug resistance profile, coupled with competitive generic
production, would create better economic incentives for rational
management of an antibiotic than a 20-year marketing monopoly that is
valuable only if converted into product sales at high prices. It is
possible to do better than this, of course, but even such a simple
starting point would offer improvements over the status quo.

Vaccine development could definitely benefit from a shift from
monopolies to prizes as the reward for innovation. Today, vaccine
developers fight for strong patent protection in order to ensure large
returns on investments. But the patent system is also a potential
problem in vaccine development — as a barrier to the use of
technologies.

The development of the HPV (human papillomavirus) vaccine has been
slowed and is less effective than it could have been because its
development was mired by a complicated patent landscape. If prizes,
rather than the strength of the marketing monopoly, determined returns
for innovation then vaccine developers would prefer reforms in the
patent system to make it easier to use inventions in new vaccines.
Patients would benefit from competition and the lower prices for the
vaccines themselves, and society would benefit from higher utilisation
of vaccines.

Finally, some smaller firms have expressed interest in the development
of a system of prizes that rewards early stages of drug development. 

Specifically, they propose a system of prizes to reward success in
meeting benchmarks in product development, including the relatively
early phase I or II clinical trials. Such a system could be important in
areas where capital markets do not work well and there are important
benefits from early product development efforts that have little
likelihood of commercial success. Tests of products that eventually fail
to obtain FDA approval often contain useful information, and may be
important stepping stones in terms of understanding the scientific and
engineering challenges for the next generation products that work
better.

The challenge is to find ways either to value such intermediate
successes or to identify intermediaries that have the resources and
legitimacy to make such valuations. This is an area of much policy
research today.

James Love is director of Knowledge Ecology International.


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_____________________________
James Love, Knowledge Ecology International (KEI)
http://www.keionline.org, mailto:james.love@keionline.org
voice +1.202.332.2670, fax +1.202.332.2673, US mobile +1.202.361.3040, Geneva mobile +41.76.413.6584

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