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DBL%20Hendrix%20small.png College chemistry, 1983

Derek Lowe The 2002 Model

Dbl%20new%20portrait%20B%26W.png After 10 years of blogging. . .

Derek Lowe, an Arkansan by birth, got his BA from Hendrix College and his PhD in organic chemistry from Duke before spending time in Germany on a Humboldt Fellowship on his post-doc. He's worked for several major pharmaceutical companies since 1989 on drug discovery projects against schizophrenia, Alzheimer's, diabetes, osteoporosis and other diseases. To contact Derek email him directly: derekb.lowe@gmail.com Twitter: Dereklowe

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In the Pipeline

« Brazil Pulls Out the Pin | Main | Summer Hours »

July 7, 2005

More on Brazil and Kaletra

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Posted by Derek

I didn't plan on becoming the defender of Abbott's pricing decisions, particularly after that Norvir business in 2004, which I though reflected poorly on them. But these are special circumstances. Since we're on the subject of Brazil and its compulsory licensing threat, I thought it would be worth going to the source. Here, then, is the statement of Brazil's Minister of Health on the matter, dated June 27th. There are some interesting features in it that I'd like to highlight (emphasis added):

"This stage may come to represent the first step for introducing a new phase in our local ARV production. An additional target is to support our national manufacturing industry in this respect, as we are totally committed in maintaining high quality in the medicines available in the public health services.

The Brazilian law allows compulsory licensing in cases of public interest or emergency situations. These are related to issues that involve health, nutrition, protecting the environment, and the technological or sociological development of the country."

Now, much of the rest of Dr. Humberto Costa's statement emphasizes pricing. But I find the industrial-policy aspects rather troubling. How much of this decision is predicated on economic nationalism? We can argue about to what extent Abbott should forgo Kaletra profits in order to help poor Brazilians who are infected with HIV. But should they forgo profits in order to develop the Brazilian generics industry? Here's some more from Dr. Costa:

"In spite of being successful in reducing prices over the period, Brazil still pays exorbitant and unacceptable prices even from the point of view of the full application of capitalist principles."

Wow, even from the point of view of capitalism and everything. . .we've gone about as far as we can go, I guess. How annoying that the antiretroviral drugs have pretty much all come from people who hoped to earn back the immense cost of their development. All I can say to Dr. Costa is: if you think the prices you're paying are unacceptable, you should see what other people have to pay to make up for yours.

And here comes some more capitalism, so get braced: if you go ahead and confiscate someone else's intellectual property, companies will have to factor the chance of that happening again into their future development costs and pricing decisions. And no, in case you're wondering, that will not make prices go down, and it will not make people eager to do more business in Brazil. Not to worry, though: if countries around the world follow your example and seize whatever drugs suit them, eventually there won't be many drugs to seize.

Comments (34) + TrackBacks (0) | Category: Infectious Diseases


COMMENTS

1. Scott S. on July 7, 2005 9:27 PM writes...

Agreed. I guess people feel that drugs just drop off trees or something. The lifeblood of pharmaceutical companies is making and selling drugs. When governments mess with this process, it just means that patients suffer.

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2. PsychicChemist on July 7, 2005 11:05 PM writes...

It just appears that everyone is out to cook the hen (pharma industry) that lays the golden eggs. The only problem is that once the hen is gone, there will be no golden eggs.

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3. Dr Toot on July 8, 2005 9:38 AM writes...

Looking at it from a more personal perspective, I take some comfort in knowing that the hookers in Rio have a better chance of lowering their viral load. Sure, it's still a risk, but that's Rio. Come to think of it, it's about time to call that meeting planner............

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4. Kay on July 8, 2005 9:53 AM writes...

Which is bigger? 1)Patented medicines of variable quality being manufactured in developing countries (this is already happening). 2)Large companies in developed countries who have lost their way and are forced to in-license new-mechanism-of-action candidates from small companies (this is already happening).

BTW: Couldn't happen to a nicer company.

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5. jsinger on July 8, 2005 10:41 AM writes...

Whatever the righteousness of Abbott's case, one can win a battle and lose the war. Abbott (and GSK before them) might have been better off taking the advice at the end of your Norvir post, conceding a billion dollars or two, and not causing massive PR damage to the entire industry. (And the industry might have been wise to help cushion the blow to them...)

The Atlas Shrugged rhetoric about "There's not gonna be any more drugs!" may be satisfying, but I want to keep my job. Not to become a Perl monkey or even, Lord help me, a molecular biology professor.

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6. Derek Lowe on July 8, 2005 11:31 AM writes...

Ouch, that Ayn Rand reference hurts. It's going to be hard to figure out the balance on this one, between holding on to IP and not looking like a bunch of moustache-twirling villians. Problem is, there are many people who regard almost any talk of intellectual property as de facto evidence of villany. . .

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7. WBurke on July 8, 2005 12:32 PM writes...

Statistics prove prescription drugs are 16,400% more deadly than terrorists

Read it for yourself at http://www.newstarget.com/009278.html - if you can handle the truth about your industry.

Some highlights:

The government spends upwards of $30 billion a year on homeland security. Such spending seems important. Since 2001, 2,996 people in the United States have died from terrorism – all as a result of the 9/11 attacks. In that same period of time, 490,000 people have died from prescription drugs, not counting the Vioxx scandal. That means that prescription drugs in this country are at least 16,400 percent deadlier than terrorism. Again, those are the conservative numbers. A more realistic number, which would include deaths from over-the-counter drugs, makes drug consumption 32,000 percent deadlier than terrorism.

According to a 1995 U.S. iatrogenic report, "Over a million patients are injured in U.S. hospitals each year, and approximately 280,000 die annually as a result of these injuries. Therefore, the iatrogenic death rate dwarfs the annual automobile accident mortality rate of 45,000 and accounts for more deaths than all other accidents combined." This report was issued 10 years ago, when America had 34 million fewer citizens and drug company scandals like the Vioxx recall were yet to occur. Today, health care comprises 15.5 percent of the United States' gross national product, with spending reaching $1.4 trillion in 2004.

Google search Death By Medicine Null and you can read the comprehensive study that takes government numbers and assembles the irrefutable evidence against Allopathic Medicine and Big Pharma along with it.

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8. Sigivald on July 8, 2005 1:04 PM writes...

I still want an ounce of whatever Burke's smoking.

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9. jsinger on July 8, 2005 1:28 PM writes...

Ouch, that Ayn Rand reference hurts.

Honestly, it wasn't meant to hurt! The truth is, if a new generation of resistant AIDS emerges, there _won't_ be any new therapies because "activists" and governments have made it clear to pharmas that developing treatments for AIDS is the last thing they want to do. I don't think Rand would be necessarily far off in fingering the responsible parties.

Nonetheless, since I don't want to live in a shack in the desert, conducting trials on Bill Gates and Martha Stewart -- I'd like to see companies consider not going to the mattresses over every last pill. (As was, I believe, your point about Norvir.)

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10. Daniel Newby on July 8, 2005 1:53 PM writes...

Why can't reciprocity handle this? If a nation wants to break patents, let them, but void all patents held by their nationals. That way Big Pharma isn't playing for favoritism, and the cost/benefit decision on patents is clearly theirs to make.

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11. Dr Toot on July 8, 2005 2:59 PM writes...

Look, it's really not a big deal if Brazil co-opts an -HIV drug or two. What needs to happen is coordination b/t Pharma & the Federal Gov't so as to prevent the over-manufacture & export of these drugs by Brazil to other countries. On a not overly tangential note, the time is approaching when the Feds are going to have to leverage our quasi-monopoly on prescription drugs into political capital to be apportioned out as part of the 'stick', as in complementary to the 'carrot'. The main hurdle is getting a level of trust/mutual interest going between Pharma & the Feds.

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12. Derek Lowe on July 8, 2005 3:02 PM writes...

Daniel, I'm not sure how big a weapon that is. I think that the value of Brazilian patents in the US wouldn't add up to enough to balance out the other side of the equation. Your solution should be enough to give some nations pause, but I'm not sure that it would.

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13. Pedro Bento on July 8, 2005 3:07 PM writes...

I'm becoming increasingly skeptical about the net benefits to society of IPR's. Some industries have had to survive with a lack of IPR's, and have found creative ways to pay for their costs and still turn a profit.

I understand that the creation of a new drug (including the cost of development for drugs that never make it) is huge, but I'm wondering how much of that cost is government-created. If those costs were eliminated, I would guess that the pharmaceutical industry could survive just fine without IPR's.

Even if the monopoly rights inherent in IP were eliminated (or weakened) first, wouldn't this result in a lot of pressure on governments to reduce their burden on the industry?

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14. Dr Toot on July 8, 2005 3:17 PM writes...

Shouldn't be too hard on Burke; having a crazy or two around is good for business, & also for reinforcing one's own vanity. One of the curious things about this shrill voice is that it lumps the homeopaths in with the rest of us Orthodox types; the simplest explanation is it does not understand the difference. While I'm assuming its' statistics err on the 'damned lies' side of the equation, let's pretend they don't in order to make a point. Burke, the question is not whether we'll have death & suffering in this world; the question is how much, & to whom it's directed. My current answers would be 'alot' & 'Islamists', respectively. Failing that, I'll settle for not seeing you lurking around the public health department sneaking a vaccine for your pups; kindly allow nature to take its course- that way we're both happy. Good day, & God bless~

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15. Daniel Newby on July 8, 2005 4:41 PM writes...

"I think that the value of Brazilian patents in the US wouldn't add up to enough to balance out the other side of the equation."

It's bigger than just loss of royalties. It also means that no company interested in the US market would have anything to do with Brazil, lest their patent portfolio become tainted by Brazilian contributions. That would turn Brazil into a leper in the outsourcing and subcontracting markets. And that, I think, would be a sufficient motivation not to blithely break patents.

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16. Pat on July 8, 2005 5:01 PM writes...

I'm becoming increasingly skeptical about the net benefits to society of IPR's.


It's unfortunate but the pharma industry is one that exists solely on IPR. The government (through the NIH) primarily funds research into drug targets, ie. basic research. Private companies shoulder the cost of paying highly educated scientists and CRAs to develop drugs and run studies on them. The R&D costs are real and huge. Marketing costs aside (which I believe the industry does spend excessively on), these R&D costs need to be recouped *and* the company needs to turn a profit. No investor wants a 0% ROI and no scientist likes hearing that their last 15 years of work were for naught. The IPR provides a period from which the pharma recoups its costs and turns a profit before giving its work to the public domain. The profit gets split among the employees, investors, and funding for the next product - just like any other corporation. No one likes to say it but the industry is basically playing a high-stakes p0ker game to give you a product to improve your quality of life at a significant cost.



Back on topic...



It'd be interesting to see what portion of Brazil's GDP comes from sales of its manufactured generics to other S American countries (and the rest of the world for that matter). If it's a significant figure that is steadily increasing annually, there's obviously more at stake in compulsory licensing. If Brazil does go through with this and we start seeing a large amount of Kaletra generics making its way to US shores, it will certainly affect how Abbott and other pharma deal with Brazil in the future. Will it turn pharma away from future HIV/AIDS (and other disease) drug developments? I highly doubt it. The lack of viable drug pipelines and constant M&A activity suggest that pharma is going to follow through with any potentially successful drug it can get its hands on.

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17. John Novak on July 8, 2005 6:24 PM writes...

The cynics in the crowd, right now, are wondering just how much of this sudden interest in voiding patents is designed to deflect Brazilian public opinion away from the bribery and corruption scandals that are such the rage in that area.

And how much damage he'll do with this deflection in the long run.

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18. SRC on July 9, 2005 12:40 PM writes...

I'm becoming increasingly skeptical about the net benefits to society of IPR's.

Pedro, would you build a house on land to which you didn't have title?

Didn't think so. Replace "build a house" with "develop a product", and "title" with "patent," and you're there.

Curiously, many who advocate abrogating IP rights seem to view big corporations as anathema. Without patents, the winner in the marketplace would be decided whoever had the financial, manufacturing, and marketing muscle to prevail. No prizes for guessing who that would be.

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19. Pedro Bento on July 11, 2005 3:06 AM writes...

SRC: My answer to your question would be no. But let me ask you this: would you build a lighthouse if you did have the title to it (which normal property rights would enforce), but couldn't charge boats that cruise by, using the service your lighthouse provides? In the past, people did indeed build lighthouses, and made a profit at it.

There is always plenty of opportunity for profit without IPR's. For example, being first in a new market provides time to make high profits, and may result in higher-than-normal profits even after generics arrive (such as Aspirin enjoys). In other industries (I admit I'm really not that knowledgeable about the drug industry), firms may price their product very low, but then take advantage of the fact that they have an advantage in providing complements to that product. For example, successful musicians would remain quite rich on their performance revenue alone. Software designers sometimes price their products at zero, but then offer updates, patches, tech. service, etc..., at a price.

No, the incentive to create a new drug (profit) would not be as high as with IPR's. But we need to keep in mind that the IP system comes with its own costs. The system creates powerful incentives to develop drugs that "work around" existing patents in order to produce a substitute for an existing drug - the resources invested in this, while not entirely wasteful, would probably be better spent elsewhere. The system also encourages patent races, with the reward (the patent) going to the company that finishes first - this reduces the incentive to invest in R&D in the first place.

Anyway, I don't think I could say 'down with IP', at this point. I just think it's important to keep in mind the costs of the system, when talking about its benefits.

As an aside: could someone give me an idea about the time, money, etc..., that it can take for a company to duplicate a drug, as a percentage of the costs neccessary to create the original? I mean, using just the original product, not using any of the people who worked on the initial product. Just wondering...

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20. Pat on July 11, 2005 12:44 PM writes...

Pedro: I can see where you're getting at but the pharma industry doesn't operate at the service level but the product level. In your examples of the lighthouse, performance musician, and freeware software designer, the revenue comes from payment of services above and beyond the product around which it is centered. In the case of medicine, the service industry is already in place - the doctors, pharmacists, and hospitals who give you info, prescribe, and administer medication and charge for this service. For a pharma to participate in charging service fees, they'd need to develop something that requires special expertise or knowledge, like an injectable that while free requires a special technician to administer properly.

Bayer, the original Aspirin manufacturer, and other generics today enjoy nice tidy profits on aspirin because its costs have long since been recouped. It was developed in the late 1800s and I'm sure Bayer sold it at a higher price back then to recoup its costs.

In your last question, I assume you're wondering about the costs of reverse-engineering a drug in order to develop a generic? Compared to the total cost of developing the original plus all the failed attempts, it's miniscule. Developing a novel drug takes teams of experienced scientists years of development with hundreds, if not thousands of failed attempts followed by years of clinical trials. By comparison, a sharp grad student could probably duplicate a known drug in a few days with the right equipment (with the exception of drugs with complex manufacturing processes like Fuzeon). The drug structure is wide open and in many cases, the step-wise reactions are readily published in journals.

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21. Dr Toot on July 11, 2005 1:03 PM writes...

Pat: 2
Pedro: 0

{Pedro was thrown out at second base 3 consecutive times while using specious analogies, but gets a team shirt & a cookie for good intentions & lack of guile}

Permalink to Comment

22. Pedro Bento on July 11, 2005 2:55 PM writes...

Pat: Before recordings became easily duplicated, the service industry was also already in place - performance musicians made money recording songs and performing them live, while writers sold their songs to performers and publishers. As the cost of duplication decreased, the industry (grudgingly) changed by providing inserts, better artwork, better shows, etc..., in order to keep making a profit. We shouldn't discard the notion that other industries (like the drug industry) could adapt in order to function without IPR's. I would think a company that develops a drug would be in a position to make plenty of profit when that drug is introduced:

1) The fact that they have already undergone a series of trials to determine the efficacy, safety, etc..., of the drug in regards to different groups of patients gives them a huge advantage in determining the risks involved in selling the drug - wouldn't generic producers be forced to include a higher risk of lawsuits (due to less info) into their price?


2) The point I was raising about Aspirin is that the introduction of generics does not reduce the price of the original drug to that of its production cost. Being the first to introduce a drug holds many advantages over later competitors - many people will pay more for a new drug, even if they know it will be priced lower in the future - also, people don't like to switch brands after they've found something that works for them, meaning they're willing to pay more for the brand they're used to - and being the first to introduce a drug means having a head-start in continuing to improve that drug, which means by time competitors start marketing a generic, a better version may be available (at a higher price).


Thanks for your reply to my last question - when you say the drug structure is wide open, do you mean that it is public info? If it wasn't, would it be so easy for someone to take a pill and figure out how to duplicate it? In other words, to what degree does the FDA's regulations, as well the IP system's disclosure requirements, force companies to disclose valuable info about their products?


--PS-- Look, I finally learned how to use paragraphs!

Permalink to Comment

23. qetzal on July 11, 2005 7:07 PM writes...

Pedro, the problem with drugs is this.



Before you can sell a new drug in the US, you have to convince the FDA that it is both safe and effective. Among other things, that generally requires 5-6 years of clinical testing, usually involving well over 1000 patients. That's very expensive. What’s worse, ~ 90% of drugs that go into clinical testing never make it to approval.



That means the selling price of a new drug has to cover the manufacturing cost, plus the up-front development cost, plus the money spent on failed drugs, plus some profit. The manufacturing cost is typically only a small fraction of the total.



In contrast, there's no requirement for generic drug makers to prove safety and efficacy. That's already been proven by the innovator.
As far as clinical studies go, generics typically just have to show they reach the same blood levels as the original drug. That's much easier and much, much cheaper, allowing generics to sell at a price that’s much closer to the actual manufacturing cost.



Once the generic drug enters the market, the original drug is forced to reduce its price. It might still command some premium through brand loyalty, but it won’t be a big premium. If generics were allowed on the market soon after approval of the original, the innovator could never recover their enormous development costs, so they'd have no reason to develop the drug in the first place.



IP rights give the innovator a period of exclusivity where only they can sell the drug. That allows them a window to recover their high development costs (plus profit) without being subject to price competition from generics.



I don’t see how the things you’re suggesting could work, unless the fundamental disparity in development costs is dramatically reduced. I can only see a couple of ways to do that. One is to require much less proof of efficacy and safety for (some?) new drugs. That would substantially reduce development costs, and should allow lower pricing. Politically, that’s a tough sell. It would almost certainly mean more marketed drugs that later turn out to have serious safety issues and/or don’t really work very well.



Another solution would be for the pharma industry to become much better at weeding out losers before clinical testing. If the clinical failure rate dropped from 90% to 10%, a successful drug wouldn’t have to cover 9 other failures. Unfortunately, this will be even harder to achieve than my first solution, and I’m not very optimistic about it in the near term.



I keep hoping someone smarter than me will come up with better solutions, but I have yet to see any.



In answer to your questions, both FDA regulations and IP laws do require public disclosure of drug structures. Some additional info on approved drugs is publicly available from FDA. Much of it can be quite helpful to a competitor (generic or otherwise), but it’s mostly summary info. The huge volumes of detailed data that an innovator submits to FDA are mostly inaccessible without the innovator's permission.

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24. Pat on July 11, 2005 8:48 PM writes...

qetzal summed up the process and problems associated with generics nicely.


I don't foresee any changes within the pharma industry in the near future. It's an extremely high cost, high risk field with too many opportunities for failure during development, trials, marketing, and even after it's on the market (Merck, Pfizer). Way I see it there's only two motivators for taking these risks - profit and altruism.



Massively parallel institution-based research projects are the only way I see of getting around pharma's big investment-big IPR profits technique while still working within the IPR system. The coordinated efforts of hundreds of researchers and universities around the world sped up the mapping of the human genome far ahead of anyone's expectations and then published it for free for everyone to access. What if a similar approach could be applied to drug R&D? Set up a scientific foundation with a particular disease target that has a few promising possibilities of attack (MS) and not too overwhelming (cancer, HIV/AIDS). Divide research efforts among the university scientists but enable coordination and knowledge sharing so work isn't overlapped. Take promising candidates through screening and eventually clinical testing, partially paid for through the foundation. At the end the foundation sets up a corporation that sells the drug cheaply worldwide and plows the profits back into the next project. Open source institutional drug development, if you will, though I'm sure someone has thought of this before. The catches are 1) would anyone participate, 2) could the project succeed in developing and testing a viable drug, and 3) is there a way to keep pharma from poaching on the research and developing the intended drug, thus preventing the project from completion?

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25. james on July 12, 2005 12:29 PM writes...

One option would be to charge the generic manufacturer the sum total of the development costs born by the inventor. This cost could be scaled. Early into the life the IP the cost could be multiplied by the expected statistical number of failed drugs developed during the time period of the successful drug. At the end of the IP it could represent just the development costs of the successful drug. The numbers could even include in some percent of development costs as profit.

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26. jsinger on July 12, 2005 2:42 PM writes...

The coordinated efforts of hundreds of researchers and universities around the world sped up the mapping of the human genome far ahead of anyone's expectations and then published it for free for everyone to access.

That's more hype than reality. The heavy lifting on the genome project was done by the Big 5 centers, with some help on the informatics front from other academics. (And surprisingly little, come to think of it, even of that.) Having a few megabases of sequence trickling in from Beijing and South Africa was useful for publicity and political reasons, but probably slowed the overall project down far more than it helped. (Never mind Celera...)

At the end the foundation sets up a corporation that sells the drug cheaply worldwide and plows the profits back into the next project.

OK, but now you're back to square one. Even selling the drug "cheaply" requires patent protection, or they still get undercut by generics. And they have to sell even cheaper in poor countries (People are dying while greedy professors profit!) but need to make sure that those ultra-cheap pills don't get gray-marketed in the countries where the costs need to be recouped. Which is where we started.

Take promising candidates through screening and eventually clinical testing, partially paid for through the foundation.

Finally, note that there's a huge amount of extremely specialized, expensive and mostly unpublishable work that you've waved away in the part between "screening" and "eventually clinical testing". Do you think academics are eager to drop their careers and take up formulation chemistry?

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27. The Novice Chemist on July 12, 2005 3:10 PM writes...

Speaking as a synthetic organic chemist who spent a year as a formulator, I'd answer no. It's boring, painful and an art form at best and non-scientific at worst. Perhaps the materials science/nanotech folks will have something to teach us on that level.

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28. Pat on July 12, 2005 6:34 PM writes...

Yes, even I'll admit the idea I posed is overblown and grandiose but it's just that - an idea of an alternative (not replacement) to traditional pharma R&D. It follows in the footsteps of Linux kernel development viz. compounded contributions by distributed individuals to a single project. No one gives up their career, instead small efforts and progress towards objectives/milestones completed out of altruism are reported to project repositories. The corporation takes any viable product and sells it at a price comparable to what a generic could price it at. Since the R&D is largely "donated", any revenue is near profit and later capital for the next project. As stated earlier, it's not intended to replace traditional pharma but rather provide an alternative vehicle for drug development.

In any case, after considering the timelines for developing a drug under this model, it wouldn't be worth the effort. A pharma could probably develop a viable drug and let the patient expire, paving the way for cheap generics, even before this type of project to "succeed." Oh well, it was a nice mental exercise :)

Permalink to Comment

29. jsinger on July 13, 2005 10:29 AM writes...

It follows in the footsteps of Linux kernel development viz. compounded contributions by distributed individuals to a single project. No one gives up their career, instead small efforts and progress towards objectives/milestones completed out of altruism are reported to project repositories.

The problem is that you're talking about two wildly different activities. Hobbyist free software coding a) costs nothing, b) can be done in small chunks of time and c) is fun. No one is going to come home from work and do a monkey pharmacokinetic profiling study for fun, or for altruism.

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30. SRC on July 13, 2005 1:02 PM writes...

Pedro,

In the past, people did indeed build lighthouses, and made a profit at it.

Interesting. How did they do it? That's the key.

For example, being first in a new market provides time to make high profits, and may result in higher-than-normal profits even after generics arrive (such as Aspirin enjoys).

I think the problem here is quantitative. Amortizing an $800 MM R&D tab in a year or two (i.e., the time it would take generic competitors to get FDA approval for their product, starting from market launch) would be a neat trick. More to the point, however, the structure of the original compound would be known long before market launch, so without IP generic competitors could gear up to produce the compound as soon as the innovator achieved FDA approval for it. All the generic manufacturers would have to do is gain approval for their manufacturing process.

In essence, all this would put the innovator at huge competitive disadvantage. Only one of the competing companies would start out $800 MM in the hole.

In other industries (I admit I'm really not that knowledgeable about the drug industry), firms may price their product very low, but then take advantage of the fact that they have an advantage in providing complements to that product. For example, successful musicians would remain quite rich on their performance revenue alone. Software designers sometimes price their products at zero, but then offer updates, patches, tech. service, etc..., at a price.

I don't see how that would work in the pharma context.

But we need to keep in mind that the IP system comes with its own costs. The system creates powerful incentives to develop drugs that "work around" existing patents in order to produce a substitute for an existing drug - the resources invested in this, while not entirely wasteful, would probably be better spent elsewhere.

Fair comment. As Derek has pointed out previously, however, even apparently equivalent or nearly equivalent drugs are useful, since individual responses to them vary. Also, many of the "work arounds" constitute improvements to the original drug (more convenient dosing schedule, fewer side effects, etc.)

The system also encourages patent races, with the reward (the patent) going to the company that finishes first - this reduces the incentive to invest in R&D in the first place.

Not true. Patent applications are filed at the beginning of the R&D process, not the end. (Cf. my point about having title to something you propose to develop.) (BTW, this is why patents expire around five years after FDA approval, which companies usually gain around 15 years after patent filing.)

Generally pharma companies only know (at most) which targets their competitors are working on, not which class of compounds. As a practical matter, chemistry being what it is, the likelihood of two groups independently coming up with exactly the same compounds is low. To the extent they can, companies try hard to avoid this scenario, because one of them is wasting its time and money – and doesn't know it.

I just think it's important to keep in mind the costs of the system, when talking about its benefits.

Another fair comment. Thank you for your reasonable and reasoned commentary.

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31. Pedro Bento on July 13, 2005 3:25 PM writes...

SRC: With lighthouses, they noticed that, while any ship sailing by was making use of the light, those that benefited most from it were the ships that were sailing into port. By making a deal with the ports before building the lighthouse, or by buying the ports (I can't remember which), they were able to appropriate part of the docking fees.


In regards to the FDA, I guess that's why I was asking where all these costs are coming from. My perception is that the FDA adds millions of dollars in costs, and then strips away much of a company's potential profit by making public the drug's structure, its clinical trials, etc...


If the FDA disappeared, drug companies would be be responsible (to consumers) for proving eficacy and safety. Without the FDA, how willing would people be to buy a generic brand, even from a reputable company, that had undergone much less testing? While some would still buy it, the higher risk would mean lower demand, and a lower price.


So, I guess my question is this: Are IPR's necessary for a functioning drug industry, or are they an imperfect government solution to a government created problem?

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32. SRC on July 13, 2005 4:36 PM writes...

Pedro,

Thanks for the lighthouse story, which is interesting. I'd call the lighthouse a loss leader for the port. In essence, the port just bundled the lighthouse with the other port services. Also, the port had a natural monopoly, so it didn't need legal property rights to collect its money.

So it would seem that a closer analogy would obtain if not all the dock owners went in on the plan, so that they had the benefit of the lighthouse but not the expense.

The problem with abolishing the FDA is that most people lack the ability to judge the adequacy and appositeness of scientific data (furtively looks over his shoulder for young Burke, then hurriedly moves on).

In the absence of the FDA, Kevin Trudeau and other of his phylum would proliferate like fungus on a damp wall.

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33. Kay on July 14, 2005 10:10 AM writes...

It's nice to see the truth revealed here regarding what formulators actually do. Big companies should be allowed to grab as much money as they can because their business model is flawed. The extra cash could be used to pay severance in order to ease the transition from pharma R&D'er to ebay'er.

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34. markm on July 16, 2005 9:49 AM writes...

In the lighthouse example, I'm pretty sure the lighthouse owners would have made a deal with the local government to ensure their share of the docking fees.

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