Will Health-Care Reform Save Medical Innovation? An Interview With Dr. Jerry Avorn.
Since we've been talking a bit about pharmaceutical innovation and whether it could survive a universal health-care system, I wanted to bring an actual expert on the subject into the conversation. Dr. Jerry Avorn is chief of the division of pharmacoepidemiology and pharmacoeconomics at Brigham and Women's Hospital and author of the terrific Powerful Medicines: The Benefits, Risks, and Costs of Prescription Drugs. A transcript of our conversation follows.
You occasionally hear that a national health-care system would have a devastating impact on medical innovation -- and particularly on drug research. As the thinking goes, the system would save money, but in saving money, it would reduce profits for drug manufacturers, which would reduce the incentives for innovation. Is this worth worrying about?
No, it isn't. This is a threat that we've heard from the pharmaceutical industry for a long time. Virtually every progressive recommendation about health policy for the last 20 or 30 years that the drug industry felt might harm its bottom line has been met by the threat that if they don't make as much money before, innovation will cease and there will be no cures for new diseases. It came up around Medicare drug pricing and generic drugs. It's not a surprise to see it come up around health-care reform.
There are a couple reasons that this is a specious argument. One is that according to their filings with the SEC, the drug companies only spend about 15 cents of every dollar on research and development. That's compared to more than 30 cents in administration and marketing and more than 20 cents on shareholder equity. As an investment in R&D, I think any venture capitalist would say a company spending 15 percent on research is not a robust innovation engine.
The second issue is that if one looks at the new pipeline of drugs that Pharma has been generating in recent years, it's been puny. Wall Street has noticed this as well. There have been 20 or fewer drugs approved by FDA in recent years, which is lower than in past periods. It's sort of an open secret that innovation isn't working that efficiently.
The third leg of the stool is that if you really trace back where the seminal discoveries come from on which new drugs are based, it is federally supported research, usually funded by the National Institute of Health, and frequently conducted at universities or academic medical centers. The drug companies will then identify these discoveries and do hard, costly, and important work commercializing them. And they deserve compensation for that work. But it's disingenuous for them to imply that all the discoveries occur in their walls.
Let's focus on that for a minute. People sometimes say that there's a very sharp distinction between what researchers do and what drug companies do. Academics might be good at basic research, but they have no capacity to carry an idea through to an actual pill. Is that true?
My view is that the translation of an important scientific breakthrough -- let's say the discovery of tumor angiogenosis, which a lot of drugs were based on -- it's not implausible to say the translation of those basic science findings into a marketable product is something that could be done in university settings, and many university groups are moving towards doing their own licensing. It requires capital, but as you see with biotech start-ups, they can often get it. The more industry has dumbed itself down into a large marketing engine as opposed to a large innovation engine, the more they've made themselves replaceable.
Some people have said to me that a lot of the pharmaceutical industry's really innovative work is coming not from inside large companies, but from the acquisition of start-ups.
Exactly. If you look at where their new drugs are coming from an awful lot is coming from buying a biotech company run by real start-ups.
But let's go back to the basic economics for a second. How can it not be the case that if profits go down, incentives for innovation won't follow? How can that be wrong?
It's not true for a few reasons. One is that the amount of really good science you get for your drug dollar is even less than the 15 percent I mentioned before, because that 15 percent also includes the development of me-too drugs. That's one aspect of the answer. We are not getting that much drug innovation for our dollar at present.
But perhaps a better answer is that if we want innovation and scientific discovery we should fund innovation and scientific discovery, not go after it bass-ackwards by paying too much for overpriced drugs and hoping that some of the excess profit will trickle down into innovative research. If I'm right that a lot of the important and useful innovation comes from NIH studies, then the way to get more innovation is to fund innovation. It frankly would be a far more interesting use of any given dollar one wanted to spend.
A lot of the reason that the industry has become a bit flabby in its innovativeness is really the fault of all of us. Doctors will prescribe drugs that are expensive and no better than generics. Patients will see an ad and go demand that drug from their doctor. HMOs don't have careful formularies. We've made it too easy for companies to put their money into marketing. If you're a company like AstraZeneca and you put tens of millions of dollars into marketing "purple pills," you can demonstrate a return on your dollars much more reliably and lavishly than by putting that money towards new research into uncertain drugs. Much as it would seem that drug companies make new money by discovering new drugs they can also make a lot of money simply be advertising and refreshing existing patents.
It sounds like you're saying that one policy that could really help innovation would be comparative effectiveness review.
Comparative effectiveness could ironically be one of the best stimuli for innovation because it would put industry on notice that if you come up with a drug that is no better or more expensive than what we have, no one will buy it, so you better perform better in R&D. It makes it harder to compete based on marketing. Right now, the bar is not high enough.
What are some other policies that could encourage innovation?
There is a whole category of innovation we desperately need which is innovation in our health-care delivery system. We desperately need innovation in how we communicate with patients and do our diagnostic work-ups, all that is desperately needed, just as much as product innovation. And that would be a huge boon to our health-care system. If comparative effectiveness research is done and its findings are taken seriously, not only will it not rule out a drug being lucrative for a company, it will actually enhance the possibility. If you come up with a drug for cancer that reduces morbidity and mortality, an efficient comparison effectiveness health care system will make that adoption process quicker. And we'll also need ways to develop the comparative effectiveness findings into clinical behavior.
It seems like Health IT could help with that.
Definitely. When you go to order a drug on a computer, something could pop up and say, you know, there's a better drug for this.
Last question. What about prize systems as an alternative path to the patent system?
It's an appealing idea. It would help undo some of the mischief that comes from a patent policy that is problematic. It puts all of the ownership and IP power in the hands of whoever ends up with the molecule in the end. We actually had a meeting at Harvard about a related topic last year and a speaker said that anyone who proposes that should also be comfortable with the idea that no economists would get paid unless they won the Nobel prize. It's an interesting idea, but I'd prefer to see a reformed patent system that made it harder to get a patent just by changing the color or the shape or the isomer.
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