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Posted at 12:13 PM ET, 01/31/2011

Wanted: Better drugs

By Ezra Klein


I often complain that "innovation" is a fuzzy concept that's difficult to talk about in a concrete way. That gets less true, thankfully, when you zoom in on specific industries. Then it becomes easier to identify specific problems and specific policies that could help.

Take the pharmaceutical industry. We know that the discovery of new drugs has been slowing down. We don't really know why. Some people say it's because the easy profits from developing me-too drugs -- which eat up about 80 percent of the sector's R&D budget -- are just too tempting, and real innovation is just too difficult. Others say it's because discovering new drugs has simply gotten a lot harder. What isn't in doubt is that we could do a better job aligning the incentives for innovation. Writing in Health Affairs, Arjun Jayadev and Joe Stiglitz have two suggestions that both make a lot of sense:

1. Governments should pay more for innovative drugs than standard ones. This is called "value-based insurance design," and it's a hot idea in health-policy circles. Instead of Medicare paying whatever Pfizer says its drugs are worth, Medicare would decide payments based on "the marginal clinical benefit of additional drugs." Under a system like this, Medicare would pay the full cost of a new drug that's a big improvement over what's out there, but only, say, 70 percent of a me-too drug. That'd make the market for truly innovative drugs a lot larger than the market for me-too drugs. In other words, the market would be tilted toward innovation.

2. Governments should pay the cost of clinical trials. Clinical trials are one of the most expensive parts of developing a drug, and pharmaceutical companies have to bear the whole cost. This presents a couple of problems: It's a conflict of interest, for one. It's a disincentive to try drugs that might not work out. It forces small companies with innovative cultures and products to sell themselves to larger companies who can front the cost of drug trials. It means the trial data, which could be of great help to other innovators and to medical researchers, are proprietary. Some form of public funding for trials could solve all these problems, and you could even bias it toward innovative drugs and away from me-too drugs.

I should note that there isn't really anything wrong with me-too drugs. Some of them are slight improvements on their predecessors, or work for different people in different ways. But if we want to encourage breakthrough innovations, the system should be set up to heavily advantage the innovators, rather than the companies that are trying to play it safe.

Photo credit: Francois Lenoir/Reuters.

By Ezra Klein  | January 31, 2011; 12:13 PM ET
Categories:  Delivery system reform, Health Reform  
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   StumbleUpon   Technorati   Google Buzz   Previous: 'The Great Stagnation,' Part II
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You have to be careful when considering me-too drugs- often the follow-ons are a result of the long development time when multiple companies got in to the same field, not companies copying the precise chemical matter:
More often the copying is around patent-extension strategies (Claritin/Clarinex, Prilosec/Nexium). So if you make it even more of a race to get to market first because you get to charge more, I think you're asking for other problems.

Posted by: _SP_ | January 31, 2011 1:02 PM | Report abuse

It's an old problem but would the "value-based insurance design" provide enough incentive for drug companies to devote more R and D dollars to drugs that actually prevent or eliminate the causes of disease rather than drugs that just address symptoms? There is much more profit in the latter because of repeated use.

There was a under-reported scandal involving antacid drugs a few years ago after it was discovered that targeted antibiotics eliminated the problem and the companies who sold antacids knew it.

Posted by: BobFred | January 31, 2011 1:06 PM | Report abuse

Oh Ezra, please, give me a break. One, too many drugs simply do not work despite the best lies of the pharmaceutical industry. Look at the big money makers, statins and so-called mental health drugs. Statins are worthless (except to Big Pharma and doctors that push them, read Ravnskov and Taubes) and drugs used to treat anxiety, depression, attention deficit, bipolarism, etc., either don't work as well as a placebo or do more damage(see Whitaker, Anatomy of an Epidemic). Big Pharma does not need help, it needs to go away. Second, these drugs simply are not necessary. If more people understood the connection between nutrition and health, we wouldn't have a so-called doctor shortage and the country could save billions, if not trillions, of dollars a year.

Posted by: johnsonr1 | January 31, 2011 1:20 PM | Report abuse

If you really want to spur innovation and lower prices on pharmaceuticals, abolish the FDA.

Perverse payment schemes are for the perennially confused.

Posted by: msoja | January 31, 2011 1:37 PM | Report abuse

The best drugs are given to the elite few these days.

It is pathetic but the way it is and we see it time and time again with the megarich getting access to successful drugs that most can not access

Why we dont allow others with less money to have such access shows how absolutely terrible our system is here in the US

Posted by: Bious | January 31, 2011 2:35 PM | Report abuse

"Statins are worthless"
If you think this you're either an idiot or have no idea what you're talking about. Statins are one of the few classes of drugs- some of the others being things like antibiotics/antivirals that have short term observables- that have actually been validated to reduce morbidity and mortality in a significant population sample. Most drugs are considered a success if they meet some artificial endpoint based on something that can be measured in a reasonable time frame. Statins themselves were initially validated like that- they reduce LDL- but there's always the question of whether the marker you're using actually matters for life span. Statins have had that study done, that they lower LDL and that the result is not just a better number but people actually living longer and getting sick less.

Posted by: _SP_ | January 31, 2011 4:29 PM | Report abuse

So, statins work because they lower LDL. That's brilliant. There is simply no evidence connecting LDL values with heart disease. Perhaps if you took the time to read the literature you might know this. The latest trials of new statins show only that they do not reduce mortality from all causes. You must be a doctor or a pharamceutical representative.

Posted by: johnsonr1 | January 31, 2011 6:35 PM | Report abuse

The problem with this is that it assumes we actually could do better with some tweaking.
In fact, as a PhD in the biotech industry, I don't think this is so.
The reasons are complex, but they boil down to two things: we know shockingly little about how the human body actually works, at a molecular level, and humans are very $ guinea pigs.
Thus, Ezra's suggestions won't do anything cause they are not attacking the root cause of the problem.
we could, in theory, learn about how the human body works with more basic RnD; however, testing in humans is hard.
To put it another way, implicit in Ezra's suggestion is an attenuated strain of the paranoid style in american politics: "they" - big pharma - could do better, but for various nefarious reasons are not.
I'll grant the execs of big pharma are no angels, but still, they are trying awfully hard.
Its just that we don't know how to make better drugs (although lots of PhDs will tell you, give us more money...kind of a self serving argument).
To get an idea of how unbelievably difficult it is to find out how humans respond to drugs, consider the case of statins; given the importance of heart disease in western culture (espically to rich white guys) a huge amount of effort has gone into asking a simple question - does taking a statin increase your life ?
it turns out you need to study 1,000s of people over years to get an answer (WESCOPS and S4I trials).
we really can't afford that kind of effort to often - even if we spend money in IWU (Iraq war units, 1 IWU = $1trillion us) we can't afford it

Posted by: ezracolbert | January 31, 2011 7:44 PM | Report abuse

Be careful what you ask for. Sales of biologics are doubling at least every five years. We're going to have to make a lot of cost-benefit decisions in the coming decades.

Posted by: bmull | January 31, 2011 10:12 PM | Report abuse

couple of points. u've argue convincingly last year that patents need to be reduced to about 5-10 years instead of the current 20-25 years. For the sake of generics (im assuming those are the so-called "me too drugs"?).
so, now u're arguing that profit margins is why big pharma isn't investing enough in R&D? please tell me im mistaken.
Because i think either of those new ideas is just too burdensome to the Federal Gov't and increase the deficit too much.
A longer patent would solve both at a better cost to tax payers.
and by the way let me assure u, profits margins are the least of big pharma's concerns. drugs have never been more expensive. and actually pharmacies around the country charge twice the price on even generics, so profit margins are hardly a problem.
allowing and encouraging companies to charge double or more on unique drugs really defeats the point of health reform.
patent reform should have been reduced to 10 years.
next time you play such an incommensurate role in shaping our nation's policies and people take u on faith on data you provide, make sure you understand what the freak you're talking about, because patchwork systems like the one you're designing are what are putting redtape in our government. think of the freaking consequences.
if the government figures out a way to simultaneously make prescription drugs even more expensive than what they are and increase the federal deficit while unnecessarily increasing the size of government, i will cease being a progressive and understand the logic of being an economic and social libertarian. live and let live. cut all the redtape and let me make my own decision to live and die by.

Posted by: lupercal1 | February 1, 2011 11:36 AM | Report abuse

--*let me make my own decision to live and die by.*--

Attaboy! Except you also say...

--*allowing and encouraging companies to charge double or more on unique drugs really defeats the point of health reform.*--

Why can't you let companies live and die making their own decisions?

You know, the whole notion of health care "reform" is just a grand pantomime to convince some people that with the right amount of voodoo, out can pop a free lunch somewhere. No matter how you slice it, the government is not streamlining or remaking or discovering new game changing efficiencies. It is merely stealing more money from more people and hoping that the new loot will cover all the giveaways being promised at the same time. And all that stolen loot could have been used in umpteen other ways by people improving their own lives in their own ways. But that's the unseen destruction, the slow grind to mediocrity and failure, that is the ultimate termination point of stupid socialism.

Posted by: msoja | February 1, 2011 6:32 PM | Report abuse

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