Issue #37
February 28, 2005
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Business Pharmaceutical Economics by Sten Grynir Although the pharmaceutical industry likes to point to their research and development expenditures as proof that they are benefactors of mankind, fully justified in charging the prices they do for the vaccines and medications that millions rely on for their daily existence, the truth is that the present structure of pharmaceutical R&D is a dysfunctional one from the standpoint of society.
Much of the R&D expenditures of the drug companies is devoted to churning out minor variations on existing drugs to extend their patent period, developing drugs whose main use is cosmetic, or running clinical trials on drugs developed with federal, university, or foundation funds. Far more is spent on advertising and payola to physicians than is spent by drug companies on the development of life-saving medications, and those medications tend to be the ones that would sell best in the US, Western Europe, and the more prosperous countries of the Far East.
It's not only the so-called "orphan diseases" (those that have a devastating effect on a very small number of people") that are ignored; diseases affecting millions worldwide (malaria is a good example) have no cures in the major drug companies' pipeline. Profit margins on drugs to be sold in third world nations are likely to be robust, but by no means the bonanza that a Viagra sold in the US, Europe and Japan has proven to be.
Since it is unlikely that the pharmaceutical companies will change their ways anytime soon, some mechanism must be devised to overcome the shortcomings of the present system. The simplest and most direct solution would be to use the drug companies for the things they are good at: FDA trials, manufacturing and marketing, and assign to government the things it is good at: establishment of need, R&D, and preliminary trials. This would allow priorities to be set by need without sacrificing efficiencies built up over the years.
Once a drug or vaccine has made it through development and preliminary trials at government expense, private pharmaceutical companies can bring it through final trials and into production in exchange for an exclusive license, shorter than the current patent period, to reflect the public's investment. The patent itself would be held by a government agency whose enabling legislation would spell out a more open policy of information use. If more than one company is interested, a terms auction could be held, or non-exclusive licenses could be granted. For those items that do not stimulate drug company interest, final trials and manufacturing could be done on a fee or cost-plus basis, perhaps by reputable overseas pharmaceutical companies that might be more eager for the business.
These principles, coupled with a change to the Bayh/Dole Act that would restore ownership by the public of pharmaceuticals and other inventions developed with public funds, would usher in an era of increased innovation.
New York Stringer is published by NYStringer.com. For all communications, contact David Katz, Editor and Publisher, at david@nystringer.com
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