8 ms·

If you think about it, the entire US pharma industry paradigm doesn’t really make sense. A lot of exploratory research into drugs is publicly funded, but for so

If you think about it, the entire US pharma industry paradigm doesn’t really make sense. A lot of exploratory research into drugs is publicly funded, but for some reason we then rely on private companies to pass FDA trials and bring the drug to market, at the cost of profits/subsidies/advertising/executive compensation/rent seeking IP. Why not publicly fund R&D all the way up to when a drug passes FDA trials, then allow any private company to produce a generic version of the drug? That way you have competition on the price of manufacturing without all the unnecessary costs involved with private IP

jjoonathan 8y ago
I've wondered the same thing. I suspect it was argued that people betting their own money will be better at choosing winners from the pool of results coming out of publicly funded labs. I doubt that this effect is large compared to the rent-seeking it enables, though.
mjevans 8y ago
The argument would be much easier to make if the US had single payer healthcare as well. "We the people" already have to pay, it's just that the costs are hidden from us so the majority of the population gets to ignore that they're really paying even though it might not look like it.
- etrautmann 8y ago
  we're primarily paying for early stage basic science, which is the desired purpose of public funding. The huge investments in biotech and pharma (>$50M to bring a drug through clinical trials) are privately funded
etrautmann 8y ago
which drugs do you fund? I doubt that public funding of drug R&D will be as efficient as a privately funded effort. If it were all publicly funded, the incentives for selecting drug candidates throughout all stages of the pipeline are shifted.
- adw 8y ago
  Public health outcomes. The model would be something like the UK's NICE. It has many fewer perverse incentives than the current model (which focusses on diseases of wealth). It's not at all clear that it wouldn't be markedly more efficient in terms of public health outcomes.
  - refurb 8y ago
    How do you apply NICE’s framework to in early R&D when you have no idea what the clinical benefit might be?
- opportune 8y ago
  The government already does decide which drugs to fund, just at a different stage of the pipeline. Also, it honestly probably will be about as efficient, since we subsidize a lot of medicine’s private R&D already (eg orphan drugs), not to mention eliminating the rentiership of private IP and (some of) the waste of pharmaceutical marketing
Gatsky 8y ago
This is a good question that is difficult to answer. I think the answer is that drug development is the kind of process which public institutions are particularly ill suited to manage. That isn’t to say it’s impossible, but the chance of messing it up is very high. A public institution simply cannot fund a research process purely based on facts. There are always other political motivations involved, about where the money goes, who gets the money, who is getting too much money etc. A drug company is free to pursue and fund development of drugs based on merit alone.
- cfqycwz 8y ago
  Is that the basis on which drug companies currently pursue and fund development of drugs?
  - Gatsky 8y ago
    Yes, in my experience.
  - maxerickson 8y ago
    To the extent that merit is equal to profit anyway.
- redial 8y ago
  > I think the answer is that drug development is the kind of process which public institutions are particularly ill suited to manage. > A drug company is free to pursue and fund development of drugs based on merit alone. What? The argument that only they can provide what the public needs is just an excuse to avoid competition, as it is everytime you hear it being made in any industry: Municipal broadband is not able to fulfill the requirements of the fast-pacing telecommunications market so we should outlaw it and subsidize the private sector even more so you can finally have that 1MB dsl line you were due in 1999. The Pharma industry has been "caught" many times preferring and in some cases preventing development of "cures" to instead sell long lasting treatments. Like most businesses, the only merit they care about is what makes them the most money, and there is nothing wrong with that, but let's not make them the gallant saviors of the masses when their evident greed becomes apparent every quarterly report and lobbying all over the world to avoid any form of competition is just the latest example of it.
csdreamer7 8y ago
Because the US govt can't file for most patents. The constitution says any IP developed by the US is in the public domain (there are secret patents but they may not survive a skeptical supreme court). The US govt wants American companies to own patents so the profits come to the US. US developed products and research used to be free to everyone (the US govt funded BSD). The US govt stopped that when Japanese companies started bring new inventions to market that American companies didn't want to because it threatened it's current product line. With tax shifting strategies and countries negotiating deep discounts while Americans pay much higher prices; it is difficult to justify the current practice now.
- opportune 8y ago
  But I am suggesting that these developed drugs do become part of the public domain! Let the government develop it and let anyone who meets manufacturing standards manufacture it. It sucks when Japan does that to cars, but it would suck a lot less if Japan did that for lifesaving pharmaceuticals. In that case it’s not an investment in technology that could be used to strengthen the economy directly, but instead an investment in public health (which will of course benefit the economy indirectly)
  - dgzl 8y ago
    I love the spirit, but "let the government do it" usually means contacting. Edit: which is considerably more expensive than it should be.
    - opportune 8y ago
      The gov. could "contract" the way they do with research grants, and could also expand the FDA/NIH to do more in house. Traditional government contracting sucks, I fully agree
- mrfusion 8y ago
  Makes me wonder. Can the usps file for patents? Can they have trade secrets? What about trade marks?
aaavl2821 8y ago
As I'm sure you could guess, the reality is much much more complicated. Drug dev is really hard, and really expensive. Private money funds an order of magnitude more R&D than the government. That private money takes a huge amount of risk, and most investors lose money (even in the last few years when VCs and public equity investors have made money, those profits will probably be offset by poor returns to pharma companies for their expensive acquisitions of risky assets). The actual rent seekers in the US healthcare system are large hospital systems, although that's not something that is discussed much in the public debate (hospital spend accounts for 30% of US healthcare spend compared to 10% for prescription drugs, and the strategy of hospitals the last decade or so has been to consolidate into local monopolies so they can capture market share and drive higher rates with payers -- pretty much the definition of rent seeking) Drug company R&D productivity has been declining for years, and probably will be zero or negative in a decade barring breakthroughs. From my limited experience working with NIH and FDA, the government would be way, way worse -- there is very little accountability so simple things are really hard and slow. NIH spends ~$34B on R&D. Private industry spends over $200B (mostly US pharma companies, with a good number of EU and some Japanese as well). Top 15 biopharma companies spend like $70B per year on R&D in aggregate. Global venture funding is on pace to be $15-20B this year for biopharma Despite all this money, we got 47 new drugs in 2017 in the US. Most for cancer and rare disease, because those are the only remaining therapeutic areas where you have enough of a shot of making money to attract private capital. If you look at the top 10 causes of death in the US, only one -- cancer -- receives much private funding and new drugs -- very few new drugs for diseases like heart disease, diabetes, mental illness etc. That doesn't even account for the world's most devastating diseases, many of which receive very little funding and innovation, because the economics dont work To replace for-profit R&D with government R&D in the US, we'd need to probably quadruple or quintuple the NIH budget -- assuming NIH is just as efficient as private industry. If we wanted to allocate spend to the biggest unmet medical needs rather than those that can make a profit, we'd probably need to spend 10x the ~$300B+ the world spends now on drug R&D (that's basically a guess but I don't think it is crazy directionally, considering how little investment goes into cardiovascular disease, psychiatric disease, infectious disease, stroke, pretty much anything other than cancer) Apologies for the rant and i know this is an unpopular opinion, but I think the public debate on drug pricing and healthcare costs in general is way off and is a huge obstacle to actually making healthcare better and developing new medicines
mrfusion 8y ago
Good point. Could the fda just run the trials? That would be interesting.
refurb 8y ago
The amount of innovation and capital at risk in private biotech companies is similar to that for the tech industry. If we got rid of the tech industry and had the govt do all of it, do you believe we’d be where we are today? I’d argue we wouldn’t be. One of the big reasons why small biotech’s outperform big pharmaceutical companies is the lack of bureaucracy and high level of risk taking. Two things the govt is bad at. As well, one reason why we have so many drugs is there are thousands of companies placing different bets on an idea. If that was all pulled under a centralized committee that made decisions on what to pursue, we’d be missing out on a ton of long-shots that every “smart” person said would never work.
- ace_of_spades 8y ago
  Thank you for your opinion! :) You make it sound like there is a hard barrier between these two options but like most things in reality it is a continuum. You can have mainstream R&D be publicly funded all the way and not necessarily restrict private companies from competing. I personally believe that there is a good chance that a centralized publicly funded and nonprofit pharmaceutical organization could outperform most for profits on various important metrics. At least something that should be investigated and not dismissed outright. Regarding long-shots, I think you fall victim to the survivorship bias here. Even if some good things came out of it, the question is at what cost? If many tries fail you really need some big wins to cover those costs. Thus, it’s really something that you should look into on an empirical level before making strong judgements.
  - aaavl2821 8y ago
    Out of curiosity, do you have any specific proposals thoughts about what this centrally funded / non profit approach would look like, and why it would work? My contention is that drugs are expensive because developing drugs is expensive. Developing drugs is expensive because biology is hard. Public vs private funding would not change that
    - ace_of_spades 8y ago
      Hey, sorry for getting back to you so late but I had a full weekend :) I am not an expert in the pharmaceutical space so take everything I say with a big grain of salt. I would think it could be possible to have some agency like NSF or FDA be tasked with financing studies to develop medicines and do medical trials, etc. I don’t think it would need to look much different what there is now, maybe higher and more long-term grants for applied R&D. Manufacturing could then be outsourced, Apple style. I guess the main challenge would be to have reporting and grants be distributed effectively and fairly. There should be some level of friendly competition/ cooperation to ensure that progress is being made. But I think, in principle this already works pretty well through peer review and on some level metric tracking for individual researchers (although I would argue we still often track the wrong metrics). So it’s all about designing the right incentives work work to get done, profit is but one of the possible metrics to achieve that. This of course does not change that the work itself is incredibly hard. The benefit of doing it in a more „structured“ and nonprofit way is that it is possible to create a more specific/ tailored/ guided set of outcomes given the ability to align the incentives with societal goals. Everything you see going on in blockchain is work in that direction. How can we design economic systems where incentives are aligned to create an overall desireable outcome for individuals, the community and society at large?

jjoonathan 8y ago

I've wondered the same thing. I suspect it was argued that people betting their own money will be better at choosing winners from the pool of results coming out of publicly funded labs. I doubt that this effect is large compared to the rent-seeking it enables, though.

mjevans 8y ago

The argument would be much easier to make if the US had single payer healthcare as well. "We the people" already have to pay, it's just that the costs are hidden from us so the majority of the population gets to ignore that they're really paying even though it might not look like it.

etrautmann 8y ago
we're primarily paying for early stage basic science, which is the desired purpose of public funding. The huge investments in biotech and pharma (>$50M to bring a drug through clinical trials) are privately funded

etrautmann 8y ago

which drugs do you fund? I doubt that public funding of drug R&D will be as efficient as a privately funded effort. If it were all publicly funded, the incentives for selecting drug candidates throughout all stages of the pipeline are shifted.

adw 8y ago
Public health outcomes. The model would be something like the UK's NICE. It has many fewer perverse incentives than the current model (which focusses on diseases of wealth). It's not at all clear that it wouldn't be markedly more efficient in terms of public health outcomes.
- refurb 8y ago
  How do you apply NICE’s framework to in early R&D when you have no idea what the clinical benefit might be?
opportune 8y ago
The government already does decide which drugs to fund, just at a different stage of the pipeline. Also, it honestly probably will be about as efficient, since we subsidize a lot of medicine’s private R&D already (eg orphan drugs), not to mention eliminating the rentiership of private IP and (some of) the waste of pharmaceutical marketing

Gatsky 8y ago

This is a good question that is difficult to answer. I think the answer is that drug development is the kind of process which public institutions are particularly ill suited to manage. That isn’t to say it’s impossible, but the chance of messing it up is very high. A public institution simply cannot fund a research process purely based on facts. There are always other political motivations involved, about where the money goes, who gets the money, who is getting too much money etc. A drug company is free to pursue and fund development of drugs based on merit alone.

cfqycwz 8y ago
Is that the basis on which drug companies currently pursue and fund development of drugs?
- Gatsky 8y ago
  Yes, in my experience.
- maxerickson 8y ago
  To the extent that merit is equal to profit anyway.
redial 8y ago
> I think the answer is that drug development is the kind of process which public institutions are particularly ill suited to manage. > A drug company is free to pursue and fund development of drugs based on merit alone. What? The argument that only they can provide what the public needs is just an excuse to avoid competition, as it is everytime you hear it being made in any industry: Municipal broadband is not able to fulfill the requirements of the fast-pacing telecommunications market so we should outlaw it and subsidize the private sector even more so you can finally have that 1MB dsl line you were due in 1999. The Pharma industry has been "caught" many times preferring and in some cases preventing development of "cures" to instead sell long lasting treatments. Like most businesses, the only merit they care about is what makes them the most money, and there is nothing wrong with that, but let's not make them the gallant saviors of the masses when their evident greed becomes apparent every quarterly report and lobbying all over the world to avoid any form of competition is just the latest example of it.

csdreamer7 8y ago

Because the US govt can't file for most patents. The constitution says any IP developed by the US is in the public domain (there are secret patents but they may not survive a skeptical supreme court). The US govt wants American companies to own patents so the profits come to the US. US developed products and research used to be free to everyone (the US govt funded BSD). The US govt stopped that when Japanese companies started bring new inventions to market that American companies didn't want to because it threatened it's current product line. With tax shifting strategies and countries negotiating deep discounts while Americans pay much higher prices; it is difficult to justify the current practice now.

opportune 8y ago
But I am suggesting that these developed drugs do become part of the public domain! Let the government develop it and let anyone who meets manufacturing standards manufacture it. It sucks when Japan does that to cars, but it would suck a lot less if Japan did that for lifesaving pharmaceuticals. In that case it’s not an investment in technology that could be used to strengthen the economy directly, but instead an investment in public health (which will of course benefit the economy indirectly)
- dgzl 8y ago
  I love the spirit, but "let the government do it" usually means contacting. Edit: which is considerably more expensive than it should be.
  - opportune 8y ago
    The gov. could "contract" the way they do with research grants, and could also expand the FDA/NIH to do more in house. Traditional government contracting sucks, I fully agree
mrfusion 8y ago
Makes me wonder. Can the usps file for patents? Can they have trade secrets? What about trade marks?

aaavl2821 8y ago

As I'm sure you could guess, the reality is much much more complicated. Drug dev is really hard, and really expensive. Private money funds an order of magnitude more R&D than the government. That private money takes a huge amount of risk, and most investors lose money (even in the last few years when VCs and public equity investors have made money, those profits will probably be offset by poor returns to pharma companies for their expensive acquisitions of risky assets). The actual rent seekers in the US healthcare system are large hospital systems, although that's not something that is discussed much in the public debate (hospital spend accounts for 30% of US healthcare spend compared to 10% for prescription drugs, and the strategy of hospitals the last decade or so has been to consolidate into local monopolies so they can capture market share and drive higher rates with payers -- pretty much the definition of rent seeking) Drug company R&D productivity has been declining for years, and probably will be zero or negative in a decade barring breakthroughs. From my limited experience working with NIH and FDA, the government would be way, way worse -- there is very little accountability so simple things are really hard and slow. NIH spends ~$34B on R&D. Private industry spends over $200B (mostly US pharma companies, with a good number of EU and some Japanese as well). Top 15 biopharma companies spend like $70B per year on R&D in aggregate. Global venture funding is on pace to be $15-20B this year for biopharma Despite all this money, we got 47 new drugs in 2017 in the US. Most for cancer and rare disease, because those are the only remaining therapeutic areas where you have enough of a shot of making money to attract private capital. If you look at the top 10 causes of death in the US, only one -- cancer -- receives much private funding and new drugs -- very few new drugs for diseases like heart disease, diabetes, mental illness etc. That doesn't even account for the world's most devastating diseases, many of which receive very little funding and innovation, because the economics dont work To replace for-profit R&D with government R&D in the US, we'd need to probably quadruple or quintuple the NIH budget -- assuming NIH is just as efficient as private industry. If we wanted to allocate spend to the biggest unmet medical needs rather than those that can make a profit, we'd probably need to spend 10x the ~$300B+ the world spends now on drug R&D (that's basically a guess but I don't think it is crazy directionally, considering how little investment goes into cardiovascular disease, psychiatric disease, infectious disease, stroke, pretty much anything other than cancer) Apologies for the rant and i know this is an unpopular opinion, but I think the public debate on drug pricing and healthcare costs in general is way off and is a huge obstacle to actually making healthcare better and developing new medicines

mrfusion 8y ago

Good point. Could the fda just run the trials? That would be interesting.

refurb 8y ago

The amount of innovation and capital at risk in private biotech companies is similar to that for the tech industry. If we got rid of the tech industry and had the govt do all of it, do you believe we’d be where we are today? I’d argue we wouldn’t be. One of the big reasons why small biotech’s outperform big pharmaceutical companies is the lack of bureaucracy and high level of risk taking. Two things the govt is bad at. As well, one reason why we have so many drugs is there are thousands of companies placing different bets on an idea. If that was all pulled under a centralized committee that made decisions on what to pursue, we’d be missing out on a ton of long-shots that every “smart” person said would never work.

ace_of_spades 8y ago
Thank you for your opinion! :) You make it sound like there is a hard barrier between these two options but like most things in reality it is a continuum. You can have mainstream R&D be publicly funded all the way and not necessarily restrict private companies from competing. I personally believe that there is a good chance that a centralized publicly funded and nonprofit pharmaceutical organization could outperform most for profits on various important metrics. At least something that should be investigated and not dismissed outright. Regarding long-shots, I think you fall victim to the survivorship bias here. Even if some good things came out of it, the question is at what cost? If many tries fail you really need some big wins to cover those costs. Thus, it’s really something that you should look into on an empirical level before making strong judgements.
- aaavl2821 8y ago
  Out of curiosity, do you have any specific proposals thoughts about what this centrally funded / non profit approach would look like, and why it would work? My contention is that drugs are expensive because developing drugs is expensive. Developing drugs is expensive because biology is hard. Public vs private funding would not change that
  - ace_of_spades 8y ago
    Hey, sorry for getting back to you so late but I had a full weekend :) I am not an expert in the pharmaceutical space so take everything I say with a big grain of salt. I would think it could be possible to have some agency like NSF or FDA be tasked with financing studies to develop medicines and do medical trials, etc. I don’t think it would need to look much different what there is now, maybe higher and more long-term grants for applied R&D. Manufacturing could then be outsourced, Apple style. I guess the main challenge would be to have reporting and grants be distributed effectively and fairly. There should be some level of friendly competition/ cooperation to ensure that progress is being made. But I think, in principle this already works pretty well through peer review and on some level metric tracking for individual researchers (although I would argue we still often track the wrong metrics). So it’s all about designing the right incentives work work to get done, profit is but one of the possible metrics to achieve that. This of course does not change that the work itself is incredibly hard. The benefit of doing it in a more „structured“ and nonprofit way is that it is possible to create a more specific/ tailored/ guided set of outcomes given the ability to align the incentives with societal goals. Everything you see going on in blockchain is work in that direction. How can we design economic systems where incentives are aligned to create an overall desireable outcome for individuals, the community and society at large?