Magazine Article | May 30, 2014

Drug Development – You Get What You Incentivize For

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By Rob Wright
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Allowing the application of a “one-size- fits-all” intellectual property policy that affords the same protection for Frisbees as lifesaving and sustaining medicines would be, quite frankly, moronic and short-sighted. It would also be a disincentive for companies to develop R&D-intensive drugs because the longer it takes to develop, the shorter patent life you have. The converse is also true — less costly drugs brought to market more quickly get longer patents. Until fairly recently, this is exactly what was done, and why we had the “me-too” drug era of the 1990s as well as the shortage of antibiotics necessary to treat common infections today. If you want new cures in areas that don’t seem profitable, you need to provide the proper incentives for companies to take the risk, along with making sure provisions are in place to properly align industry stakeholders (e.g., how Medicare reimburses hospitals for antibiotics). Now, if you want inexpensive drugs, we need to further rethink drug patent protection to achieve this as part of the outcome.

According to American economist Steven Landsburg, most of economics can be summarized in four words: “People respond to incentives.” Don’t forget, pharmaceutical companies are run by people and similarly respond to incentives. For example, prior to 1983, industry averaged fewer than one specialty pharmaceutical per year for rare diseases. Apparently, Democratic Congressman Henry Waxman believed this level of productivity to be inadequate and sought to increase the development of rare disease drugs. In so doing, Waxman demonstrated an affinity for Landsburg’s economic philosophy. How else can you explain his serving as the principal author of the Orphan Drug Act (ODA), which provided incentives (i.e., federal grants, development assistance, waiver of the PDUFA filing fee, a 50 percent tax credit of clinical investigational expense, and a seven-year period of market exclusivity after FDA approval) to entice companies to develop more rare-disease drugs? Today, our industry averages more than 13 specialty pharmaceuticals annually, proving the point — people respond to incentives. Obviously, the FDA believes this also to be true, having created a number of additional acts to incentivize innovation, such as Fast Track, Breakthrough Therapy, Accelerated Approval, Priority Review, and GAIN (Generating Antibiotic Incentives Now). Though all have various enticements and provisions, I have yet to find one which specifies, “And make sure it’s cheap too.”

In March, Waxman and two other Democratic members of the House Energy and Commerce Committee wrote a letter demanding Gilead Sciences justify the price of its hepatitis C drug. Well, Mr. Waxman, it is what it is. You got exactly what you incentivized for — a breakthrough therapy drug. Cheap was not part of the incentive. Ever consider longer patents? What about tying longer patents to how quickly a company is able to execute its R&D plan or tie it to a step-down, drug-pricing exchange model, or even request price estimate forecasts as part of participating in an incentive program? But if you want companies like Lilly (see feature with CEO John Lechleiter, p. 24) to continue developing drugs such as Cyramza, which received FDA approval for stomach cancer in April, don’t demand they justify the price after the fact. This year an estimated 22,220 Americans will be diagnosed with stomach cancer and 10,990 will die from the disease. Cyramza has shown to improve median overall survival by 1.4 months. What is that worth?