I'm not sure I need to write more than just the title of this post to make the point.
If you read the New York Times, you might have recently seen this headline and subheading:
The article goes on to explain that the US Government has a patent that the vaccine companies need to license in order to produce their vaccines, but the government has not used that leverage to get the vaccine producers to act like decent global citizens, for example, by publishing their vaccine recipes so other, poorer countries could produce the vaccines at lower costs. It also notes that governments have poured billions of dollars into vaccine research to help the vaccine companies develop their vaccines. And yet, the government is not pressuring the vaccine companies to share their knowledge, which means that the virus will continue to spread and kill people in poor countries (which is bad enough) but (since this is what we care about) it will also promote the creation of new mutations against which our current vaccines are not effective, thereby prolonging the crisis even for the rich countries. Obviously Alt-QAnon is hard at work here.
All of this -- and the Covid crisis itself -- should be a stark lesson to policymakers that leaving drug and vaccine development completely in the hands of AISOs is borderline insane.
It's particularly interesting that our arch-rivals China and Russia are doing exactly what we should be doing:
Click the link on vaccine diplomacy and you'll see that these countries export vaccines despite pressing needs at home. Sad that these totalitarian states are teaching us about geopolitical altruism; it just goes to show that rule-by-WRAITH is just one more brand of totalitarianism.
The best articulation of a proposal to truly allow for government development of drugs is one submitted to the Obama administration in response to a Request for Information by the Office of Science and Technology back in 2014. Because of its prescience, and its applicability to the current crisis, I'm going to simply cut and paste the proposal below, with the hope that it attracts some attention in the right places. Clearly, if we had adopted that proposal back in 2014, we would have been much better equipped to deal with Covid on a global basis, which would have saved us trillions of dollars (in stimulus checks and the like), and would have helped restore our image as a benign superpower in the world. It's not too late to adopt a proposal like this for the next crisis.
This is the NoCopyright Party’s response to the RFI for “Strategy for American Innovation,” 79 Fed. Reg. 44064 (July 29, 2014).
The NoCopyright Party represents the interests of over 319 million stakeholders, all of whom have an interest in a generous public domain for creative works and technology ranging from literature to medicines. Our response describes our proposal for an enhanced role for the government in bringing important medical treatments to the public without patent restrictions. Should you have any questions or need additional information, contact us at party@nocopyright.com.
A National Laboratory for Drug Development
This proposal is most responsive to questions 5, 7, 8, 10, 21, 22, and 24, and it has implications for question 11. After explaining the proposal, we tie it to these questions.
The thrust of the RFI suggests that the government must work hand-in-hand with the private sector in order to accomplish the stated goals. We acknowledge this approach, but nevertheless urge one critical exception to the mindset that private industry can solve all our problems. In fact, some of the most pressing problems of today are best addressed head-on by intensive government engagement.
The development and delivery of pharmaceuticals to the public is one such area. In this regard, the NIH simply does not fulfill its potential – again and again, path-breaking findings made by NIH scientists at the public’s expense are converted into the intellectual property of corporations, with the result that the public pays for them twice. The Bayh-Dole Act institutionalizes this sort of double-dipping, and its alleged “successes” have blinded legislators and policymakers to what could be far more successful approach to innovation and delivery of useful technology to the public.
Accordingly, we urge the Administration to propose and support a pilot project that would test the government’s ability to conduct all phases of drug development, as an alternative to relying on private industry and the patent reward to finish the job. In this initiative, the government would develop the drugs, and then pay for (or conduct) the required animal and clinical testing, and would undergo the same FDA review process (IND and NDA) as commercial pharmaceutical companies. If the clinical testing is successful, the results should speak for themselves, and generic companies will be able to apply for FDA approval based on the government’s submissions to the FDA. There would be no exclusivity period and no Hatch-Waxman litigation, and the medicines developed through this program would be instantly within the public domain all around the world. This could help the U.S. to become not just the most powerful, but also the most generous and compassionate, nation the world has ever known. We explain the proposal through a dialogue.
Q: How does this comport with the prevailing “free market” philosophy?
A: The better question to ask is “How does the current patent system, as applied to the pharmaceutical industry, comport with free market philosophy?”
Q: Ok, answer that one.
A: Hardly at all. With the patent system, the government has given up on the free market – at least for a period of time. A patent is a government-sponsored monopoly, which, like any other monopoly, creates great inefficiency, deadweight loss, suboptimal distribution, and high prices for consumers. We accept the temporary monopoly because the monopoly reward will promote beneficial innovation. In fact, the pharmaceutical industry is often seen as the poster child for the patent system – without the patent incentive, these private companies would not invest the millions of dollars needed to bring drugs to market. That’s true enough, but it doesn’t mean patents are the only way to promote innovation in this area. As we’re about to demonstrate, patents are an incredibly inefficient way of promoting innovation the critical field of human health and welfare.
More fundamentally, beyond the distortions introduced by patents, the very idea of a market-driven model for fighting disease is misconceived. Given that (1) the average American consumer (i.e. “the market”) has little clue as to the medicines the country needs to develop; and (2) drug companies will always make more money off of drugs that alleviate symptoms or recurring conditions (like erectile dysfunction and social anxiety disorder) than those that actually cure diseases (like Ebola), a market-driven model will not produce the kinds of pharmaceuticals the world needs most. And yet, despite this, the U.S. government has essentially delegated the function of deciding what drugs to develop to the “market.”
Q: So how are patents for pharmaceuticals inefficient?
A: Here is a partial list. There are several common and overlapping themes, including imperfect and distorted information, perverse incentives, and undue influence in the political process. This is not to criticize the pharmaceutical industry – except when they engage in criminal activity, these corporate entities are simply doing what is best for their shareholders, under the letter of the law. Our point is merely that the result has been an unnecessarily expensive and inefficient system for inventing and delivering needed medicines to those who need them the most.
1. Lack of meaningful price controls. In a free market, market pressures cause prices to fall to the marginal cost of production. With patent protection and FDA exclusivity, pharmaceutical prices will for many years be a large multiple of the cost of production. The result is high insurance premiums, large Medicaid, Medicare, and Affordable Care Act expenditures, and suboptimal distribution of these drugs. A current example is the controversy over Sovaldi – a patented Hepatitis C drug that currently costs $84,000 per treatment.
2. Imperfect Information. Economics 101 tells us that the free market works best when consumers have perfect information. It’s almost the opposite in the pharma world. Because of patent protection, drug companies have incentives to flood the market with “information” that will boost sales of patented drugs, rather than drugs that are off patent.
So the information is distorted to begin with. And beyond that, because their prescriptions will be covered by insurance or a government program, consumers typically have little incentive to pay much attention to the ultimate price charged.
3. Skewed incentives. Yes, the patent lure provides an incentive, but it’s not just an incentive to innovate. It’s also an incentive to perpetuate the lucrative patent monopoly, and to do everything possible to ensure consumers pay the higher patented prices. Some specific examples, all of which are antithetical to the free-market and bad for consumers, are:
a. The incentive to extend patent terms without actually doing any more innovation.
b. The incentive to steer patients toward patented medicines instead of perfectly good generic alternatives.
c. The incentive to pursue inventions that will be lucrative in the western market, as opposed to those that actually cure disease and thus have the potential to save lives.
d. The incentive to pursue new and potentially patentable compounds, while older and more promising ones will never be tested, because even if the tests show amazing results, there will be no patent profit.
4. Persuasive Money
a. Campaign contributions to federal legislators in exchange for patent term extensions.
b. Campaign contributions to politicians not to enact price controls (which are present in every other industrialized Western country).
c. Campaign contributions to state legislators to enact laws against use of generic drugs.
d. Providing doctors with lucrative consulting contracts, in exchange for the doctors’ goodwill.
e. Encouraging doctors to prescribe particular medications (e.g. through use of kickbacks plus good-looking pharma reps).
f. Direct marketing to consumers – advertising that tells consumers to ask their doctors for drugs that they don’t truly need.
5. Misleading Science
a. Development and promotion of new drugs that do not actually perform better than the older off-patent drugs that they replace, except in the studies reported by the patent-holder (see RFI Q11).
6. Legal Pretexts
a. Evergreening of patents through follow-on patents and Orange Book gimmickry
b. “Pay-for-delay” reverse settlements with generics
7. Illegal Tactics. Unfortunately, the amount of money to be made by extending the patent monopoly – often millions of dollars for every extra day without competition – can cause drug companies cross legal boundaries.
8. Duplication and lack of cross-pollination. With different multinational pharmaceutical companies pursuing patent protection, there is no guiding hand to ensure that duplicative work is avoided, or that work is shared in a synergistic manner.
9. Deadly Consequences. The “need” to keep prices high through the patent system has led to catastrophic consequences abroad in the past. This, incidentally, is one reason that governments should work together to get all potentially life-saving medications into the public domain, by whatever means necessary. The solution might be as simple as compensating patent holders up front to break or relinquish their monopolies. In the United States, it would be perfectly legal for the government to do just that, under the “just compensation” clause of the Constitution’s Fifth Amendment.
Q: But you can’t seriously mean that the government should take over all pharmaceutical research. Everyone knows that the government is incredibly inefficient.
A: It is hard to imagine any system less efficient at delivering what the public needs than pharma. NIH is already a prestigious institution that attracts top talent; we envision an extension of NIH that would literally be the most prestigious place in the world for top minds to work and collaborate towards solving the world’s problems, like a combination of Bell Labs and the Peace Corps. People with that mindset and mission are naturally efficient.
Q: Why do you refer to the “world’s problems”? Why should our research be free for other countries? Isn’t intellectual property our most important export?
A: No. Drug companies are mostly foreign-owned, and even U.S.-owned companies have most of their employees in other countries. At this point in world history, good will might well be our most important export. Think of how much good will we would build up if this project were to generate a cure or vaccine for the Ebola virus, such that it could instantly be produced by generic companies, and sold at marginal cost.
Q: Has any country tried anything like this before? (RFI Q5)
A: Well, the U.S. has – that’s basically what the Apollo Program, Bell Labs, and the Manhattan Project were all about. In each of those cases, the government (or Bell, the government-sponsored monopolist) did more than just the research – it created the final products.
Q: But that’s not pharmaceutical research.
A: Cuba is a good example of a country that has made all stages of pharmaceutical development a national priority and has reaped the rewards.
Debra Evenson explains why the Cuban model has worked:
Two factors differentiating the Cuban biotech industry are the high level of integration and cooperation among scientific institutions, and their “closed loop” approach, which emphasizes translational research and coordinates the entire process among institutions – from research to marketing – of any given biotech product. . . . For example, Cuba’s Haemophilus influenzae type b vaccine (Hib), the world’s first synthetic antigen vaccine, was the result of the collaboration by five institutions . . . .
Cuban research also prioritizes developing affordable vaccines for diseases affecting poor populations, such as typhoid fever and cholera: a fundamentally needs-driven, rather than market-driven approach. This can be contrasted with transnational pharmaceutical companies, which have come under increasing criticism for placing market interests before global health solutions, resulting in investment of 90% of R&D dollars worldwide in developing treatments for diseases affecting the 10% of the world’s population that can afford the results. Cuba also produces generic drugs, including HIV/AIDS antiretrovirals, selling them to developing countries at a fraction of the price sold by transnationals.”
There are three great points here – first, the fact that the work and knowledge is shared almost certainly leads to inventions and insights that would not have been made by labs working alone, in competition with each other. Second, the Cuban success underscores the importance of a needs-driven approach, rather than a market-driven approach, when a nation’s – or the world’s – health is at stake. And a needs-driven approach means that there must be some central planning. Third, the last sentence says it all – while transnational corporations make it very hard for sick people in developing nations to get needed medicines (because of the need to keep prices high), Cuba has stepped in and produced generic drugs and made them available at a fraction of the price. We could do that too.
Q: But isn’t Cuba a communist country?
A: Central planning is a terrible idea in most sectors of the economy, but a centrally-planned pharmaceutical development policy will almost certainly be better than one that relies on the “invisible hand” of the patent incentive. Cuba is demonstrating that. Acknowledging that central planning is a more sensible deviation from free market principles than patent monopolies in this area doesn’t make us communists.
Q: Do you have a name for this project?
A: It’s probably simplest to call it the “National Laboratory for Pharmaceutical Development” (NLPD). But the idea can be achieved by modifying the NIH’s mission slightly, so maybe a new name isn’t necessary. An umbrella term for the concept could be the “Asclepian Revival.” Asclepius was the Greek god of medicine and healing, but Zeus killed him with a thunderbolt. You figure out the metaphor.
Q: If the NLPD had existed in 1989, what kind of work would it have done?
A: It would probably have been researching and finding a cure or a vaccine for the Ebola virus. That produced a real scare here in the DC area at the time. And today again, it would be working on the Ebola virus.
Q: Can you be more specific about how you would implement this?
A: There are already good people at institutions that have the equipment and resources to start implementing the project today – the NIH, the FDA, the CDC. These people could form the nucleus of the program. And business could proceed much as usual, except that (1) there would be more central planning, and (2) once a promising research result is obtained, the government would proceed with the next stages, just as if it were a private pharmaceutical company. The “implementation” aspect – getting the drugs through animal and clinical testing could be done by procurement personnel in these agencies, or it could be outsourced to procurement personnel in other government agencies. Beyond that, ideally we would hire more geniuses and give them more and better equipment, and create a network of such labs across the country. Perhaps some university laboratories could become part of the overall mission – even now it would make sense to condition grants to universities on their promise to relinquish any claims to patent rights developed with government funds.
Q: How much would this cost?
A: A poorly-informed congressman might say “we don’t have any money, so we’ll leave drug development to private industry and the free market.” But that’s the most expensive solution of all, and it’s disingenuous. As we’ve shown, that approach virtually guarantees that any new medicines that are created will for many years only be available at monopoly prices. The “cost” of any one such drug developed by drug companies can run into the billions of dollars per year, and that cost is paid by patients and taxpayers – exactly the same people who would be paying for NLPD.
This is a political problem that must be overcome. Congress does not have to account for money that is spent on patent premiums, but that is an enormous cost to society – to the health care system, and ultimately to the government – just the same. If we are right that this is a more efficient way of creating needed health care treatments, then this would actually save money, not cost money. In other words, any drug that NLPD develops that can substitute for a patented drug will save society the of the costs of paying the patent premium price.
If we’re right, then society will recoup much more than a dollar for every dollar invested in this. If so, there is no “real” cost at all, and it would make sense to pour almost unlimited resources into this project.
Q: What kinds of medicines would you suggest for the pilot program?
A: Cancer drugs. Cancer drugs are of little use when they fall into the public domain after patent expiration, because by that time they are considered substandard. The result is that cancer drugs are always under patent, and always very expensive. So this is an area where there may never be effective generic competition, unless we provide it.
Q: Aside from researching new drugs, what else could the NLPD do?
A: As already mentioned, one of the problems with tying everything to patents is that if a compound is already in the public domain, drug companies will have little incentive to invest the millions of dollars in animal and human testing that is needed to get approval for the drugs. So this introduces a great distortion – even if the public domain compound is objectively more promising than a newly-synthesized compound, drug companies will have no incentive to make the investments to bring those promising drugs to the market. The NLPD could step in and do the necessary testing, and bring the drugs to the market, at generic prices.
Another way that the NLPD’s activities could pay for themselves, and even yield a net gain to patients and taxpayers, would be for it to do selective double-checks on the work of drug companies who are marketing follow-on drugs that they say are superior to drugs that have become generic. The NLPD could evaluate and assess the data provided and provide reports that could then be used by physicians (and patients, insurance companies, and government payors) in deciding whether or not a particular patented treatment is really better than a generic one. In some cases, the NLPD could perform “retests” to see if the results obtained by the drug companies are, in fact, reproducible. If pharmaceutical company advertising has effectively led consumers to pay millions of dollars in patent premiums for a treatment that is no better than a generic treatment, that is a completely unnecessary healthcare expenditure. If the NLPD were able scientifically prove that there the patented drug is no better than a generic, that could save the health care system many millions if not billions of dollars.
Q: So you’re saying that it’s not appropriate to look at this as the question of whether we can “afford” to pour more of our health care dollars into this. You are saying that after everything is netted out, we will have profited, right?
A: Right – we think the pilot program will confirm the logic, and we’ll find that for every dollar invested in this program, the system will save at least two dollars. If that’s the case, nothing should hold us back.
Q: Do you have anything else to say?
A: Let’s just wrap up by reiterating that a program like this should be seen as a moral and social imperative, and that it’s not just the right thing to do as a matter of economics, but it’s also the right thing for a country like the United States to do at this time in world history. It would really increase the moral force of our democratic message.
Q: Do you have any other ideas in this area?
A: Yes. Starting from the same premise – that the patent lure is a useful incentive, but that the patent itself causes great inefficiencies and suboptimal distribution – the government should seriously think about buying up patents (and any exclusivity that comes with them). Any given patent must have a true dollar value (discounted for present value): a measure of the value that the ability to charge a monopoly price for a period of time confers on the patent owner. No matter how high that dollar value is, it comes as a direct result of consumers – individuals, insurance companies, government programs – paying money for that drug. In other words, if the “value” of a patent is $10 billion, that’s because the public has paid $10 billion dollars in monopoly premiums when buying the drug.
Q: With you so far.
A: So that means that the public should be willing to simply pay $10 billion to remove the patent. That’s $10 billion that it would have spent on patent premiums anyhow, and by spending the money up front all of the inefficiencies associated with the patent monopoly are removed up front. Generic companies would simply come in and produce the drug at generic prices. All of the extra work that drug companies and the government have to do to fight off knockoffs, is no longer needed. There is also no need to “ration” the drug to maintain monopoly pricing. Assuming the drug is relatively cheap to produce (and as we know from Target and Wal-Mart, many off-patent drugs can be produced and sold to the public at $4 a bottle), we could even eliminate the insurance company middle-man for these drugs.
Q: So instead of paying the $10 billion over the period of patent term (and other exclusivity), the public would pay that same $10 billion up front, and thereby get all the benefits of the medicine, plus eliminate all the inefficiencies associated with the monopoly?
A: Exactly.
Q: Have you written this up anywhere else?
A: We have written up something very similar in the copyright context. See Ann McGeehan and the NoCopyright Party, “Worth More Dead Than Alive: Join the NoCopyright Party and Start Killing Copyrights for Their Own Good” (available at http://ssrn.com/abstract=2498530). As with patent, we agree that copyright provides a useful incentive to producers of useful things. Copyright enables authors to make good money in the first few months or years after a book is published. But after that initial period, in most cases, the copyright does more harm than good – the author’s royalty stream dwindles to almost nothing, and the public, if it still wants the work, has to pay a copyright-premium price. In that area too, it would make sense for the public to simply “buy” the copyrights and place the work in the public domain. If the author receives an amount equivalent to or greater than the value of the expected royalty stream, the author should be happy, and the work now becomes available to everybody. For books, that would mean that anyone doing a Google® search might encounter the book, and would benefit from it. Assuming, for any given book, that it is worth one penny to each member of the public to have that work in the public domain, that means that putting any given book in the public domain confers $3 million on the public. If an author is willing to part with a book for $100, that $100 creates $3 million in value.
Q: Wow. That sounds like something that needs to be implemented.
A: Right, we’re working on setting up a website that will enable people to use crowdfunding to get works into the public domain. The same concept would work in principle for patents as well, but since the dollar amounts are so much greater, it’s unlikely that crowdfunding by itself will be able to do the trick.
Q: Is there anything the government can do to help on the copyright side?
A: Well, another way of implementing the same concept for copyrights, which is consistent with the questions in this RFI, would be for the government to offer “just compensation” to any copyright owner willing to turn in a copyright that is doing more harm than good. Copyrighted works – especially those relating to science and innovation – are themselves powerful engines of further innovation. And yet many such works are under-read, and under-available, because they are languishing under copyright. If the government were to simply offer $100 for anyone who has written a book (or inherited a copyright in a book) that somehow relates to innovation, and then put the book in the public domain, that could potentially create great value and could directly promote innovation.
Q: Any concluding thoughts?
A: No, that’s it.
Relationship to questions:
(5) What innovation practices and policies have other countries adopted that deserve further consideration in the United States?
See discussion of Cuba above. OSTP should seriously study the Cuban biotech industry before dismissing this proposal out of hand.
(7) What emerging areas of scientific and technological innovation merit greater Federal investment, and how can that investment be structured for maximum impact?
Drug research and development is not an “emerging area” of innovation, but nevertheless, as we’ve shown above, investment in a centrally-planned agenda for such research and development would have a much greater impact than leaving it to the “market,” especially a market distorted by patent forces.
(8) What are important needs or opportunities for institutional innovation and what steps can the Federal Government take to support these innovations?
If a government-run lab is an “institutional innovation,” then we’ve answered this question.
(10) Where are there gaps in the Federal Government’s science, technology, and innovation portfolios with respect to important national challenges, and what are the appropriate investment and R&D models through which these gaps might be addressed?
The “gap” is in bringing the results of government-funded research to market – rather than let private companies do it, the government needs to be more involved.
(11) Given recent evidence of the irreproducibility of a surprising number of published scientific findings, how can the Federal Government leverage its role as a significant funder of scientific research to most effectively address the problem?
In cases where the public pays a very high price based on claims made by single studies, the government – through the NLPD or NIH – should look very closely at the studies and ensure that they really support the claims. In some cases, flaws can be seen by looking at the methodology and the data, but in some cases, the government may find it necessary to replicate the tests. Again, if the public (and government-funded programs like Medicaid and Medicare) is spending millions of dollars on a patented drug that is no better than a non-patented drug, the cost savings of identifying those distortions and refuting those claims would make retesting well worth it.
(21) What new challenges and opportunities for intellectual property and competition policy are posed by the increasing diversity of models of innovation?
As explained above, the patent incentive has a distorting effect on our system for producing needed medicines. A new model of direct investment that does not rely on the patent reward for recouping the costs of investment will remove those distortions, and help the public realize a much better return on its drug development investment.
(22) What are specific areas where a greater capacity for experimentation in law, policy, and regulation at the Federal level is likely to have large benefits?
As above, the health care area could greatly benefit from the “experimentation” in policy that a national laboratory for drug development would provide.
(24) Which new areas should be identified as “national priorities,” either because they address important challenges confronting U.S. security or living standards, or they present an opportunity for public investments to catalyze advances, bring about key breakthroughs and establish U.S. leadership faster than what might be possible otherwise?
The idea of creating a National Laboratory for Pharmaceutical Development (or simply making this part of NIH’s mission) should be a national priority. As explained above, it will improve the delivery and reduce the cost of medical treatment. Because the results will be IP-free, they will be available to the world at large, for free, with significant implications for national security. This aspect of the project cannot be overemphasized and must not be ignored.
See Fire In the Blood (2013 documentary) (documenting death of millions of Africans from AIDS stemming from big pharma’s blockage of generic drugs).
