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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: Twitter: Dereklowe

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March 18, 2008

A Solution, Courtesy of the MIT Faculty

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Posted by Derek

Do drug discovery and drug marketing belong in the same company or not? That question’s been asked in several forms, but two MIT professors are taking it about as far as it can go. Stan Finkelstein and Peter Temin have a book coming out (“Reasonable Rx: Solving the Drug Price Crisis”) which proposes decoupling the two by force.

By analogy to the way the electrical power industry was divided into generation and distribution sectors, they propose splitting up the pharmaceutical business into drug discovery firms and drug marketing firms. But wait, there’s more: they also would like to have an “independent, public, non-profit Drug Development Corporation” formed to act as an intermediary between the two:

“It is a two-level program in which scientists and other experts would recommend to decision-makers which kinds of drugs to fund the most. This would insulate development decisions from the political winds," (Finkelstein) said.

The MIT press release also talks up the other putative benefits of this plan, such as how it would “insulate drug development from the blockbuster mentality, which drives companies to invest in discovering a billion-dollar drug to offset their costs”. There’s a lot to talk about in this idea, but here are some of my first impressions:

1. The electric power analogy is probably specious. Generating electricity is, for the most part, a sure thing. If you build a big coal-fired generating plant, which we most certainly know how to do, it will generate electricity for you. And its output will be proportional to how fast the turbines spin. Research is most profoundly different, as many executives from other industries have found to their sorrow. You can turn the crank like crazy and have hardly anything come out the other end at all – ask Pfizer – and that’s because we do not have a very clear idea of how to discover drugs.

Another problem is that electricity is fungible. The electric power coming from one plant is exactly the same as that coming from another, and can be pooled and distributed in exactly the same way. Every drug, however, is different. The electric power industry would be rather changed in appearance if some kilowatts were ten times as profitable as the others, but only for a few years after the generating plant came on line, or if particular kilowatts were only of benefit to certain homes or businesses and had to be routed there specifically.

2. Where are these experts, exactly? I have an instinctive distrust of plans that call for a board of dispassionate technocrats to step in and do things that the market is supposedly doing by itself. It’s not that such things absolutely can’t work, but my default belief is that they won’t work as well as their planners hope. Finkelstein and Termin’s “DDC” proposal is just the sort of thing I worry about. I can see establishing something to make sure that less immediately profitable diseases get R&D directed to them, but running the whole industry like an NIH grant review board sound like a recipe for disaster.

3. To some extent, the industry is already divided in the manner proposed. But it's not done through review boards, it's done through business dealings. Many small firms don't have the resources to develop their own drug candidates, so they shop them to larger firms who can handle the clinical, regulatory, and marketing aspects of the process. This goes on all the time. It's been proposed (many times) that one or more large companies might shut their own research down completely and serve as a clearinghouse for the smaller ones in just this way, but no one has been willing to take the plunge. My guess is that there aren't enough good ideas out there for sale to keep a company going without having some of its own research in the game; I feel sure that the numbers have been run on this idea more than once.

Of course, these deals are made on the basis of who will make money, rather than how much society will benefit. But you'd be surprised at how often those two can overlap.

Where do the costs go? I suppose I'll have to read the book to get the details, but I'm not sure how money is supposed to be saved here. The cost of developing drugs doesn't look like it'll be changed much, since Temin and Finkelstein aren't coming in with any insights into human biochemistry or any new ways for us to predict efficacy or side effects. Profits, however, would surely be reduced: the the DDC that they propose would seem to exist to recommend that less profitable drugs be developed, for the good of society, rather than the ones that companies believe that they can make the most money from.

I note that the press release makes much of climate change and globalization, probably because in many circles these days you can't be taken seriously unless you mention those somewhere. This is done in the context of tropical diseases possibly making inroads into the US and other industrialized countries. But if that were to happen, research on these diseases would become much more profitable - which I realize is a crude way of looking at it, but the market doesn't have to be pretty to work. And I think the process would be slow enough to fit the timelines for drug discovery as it's practiced today - an example would be the burst of work on avian influenza in the last few years. A sudden epidemic would be bad news indeed, and might well catch the industry flat-footed, but that's going to be hard to avoid under any drug development regime.

Comments (28) + TrackBacks (0) | Category: Business and Markets | Drug Development | Drug Prices | Why Everyone Loves Us


1. ASBO on March 18, 2008 8:23 AM writes...

I feel so reassured that these two towering intellects have come to save us. Why didn't we see their wonderful genius earlier. Sheesh. Personally, the last thing I think the industry needs is academics and government technocrats telling us what we need to do. A group of people even more out of touch with reality than the MBA crowd. Curiously, in the UK power generation was separated from distribution by teh government but it wasn't long before the disco realised it was better to control their own power stations, bought out the generators and we ended up pretty much back where we started. Academics are always the same though; we're cleverer than you, have no bias so you should believe what we say. Ho hum. I'll go put my asbestos suit on now.

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2. GATC on March 18, 2008 8:42 AM writes...

All the more reason for parents to closely monitor their kids tuition invoices! This type of nitwittery is great for stimulating young minds to think differently in 100-level classes, but it is a bit embarassing for academia when it gets raised to the 300 and 400-level domain, or worse yet, incorporated into a university press release. William Rogers (a fine native Virginian by the way) must be rolling in his grave.

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3. MolecModeler on March 18, 2008 9:18 AM writes...

Yay, academia will save us. Because everyone knows that academia has put dozens of drugs on the market, and not a single one had any adverse effects!

Anyone read a recent C&E news where the head of the NIH is thinking they can do "predictive" toxicology using cells on 1536 well plates? I just laughed when I read that. Good luck NIH!

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4. startup on March 18, 2008 9:46 AM writes...

Not so long ago the similarities (and differences) between drug and motion picture industries were discussed here in some details. So let's rewrite their main points substituting drugs with movies and see what'll come out. By the way, the legend has it that Stalin once called his Minister of Culture and asked how many movies a year are filmed in the Soviet Russia. 200, was the answer. And how many of them are any good, asked Stalin. 20 or so, replied the minister. Then I direct you to stop wasting resources, and film only 20 movies a year, but good ones - ordered the Leader. So may be that's the recipe - a tyrannical Supreme Drug Overlord who would control drug development and force us to make, say, 2 drugs a year, but of such quality that people would take them and say "God, it's good!"

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5. Palo on March 18, 2008 10:12 AM writes...

I, on the other hand, have a profound distrust of opinions that mock and distrust intellectuals and academics just because they do, well, intellectual and academic thinking.
There is a health care issue (drug innovation, drug pricing) that needs attention. Some people take it seriously and propose a solution. Maybe it's good, maybe not as good. But at least it deserves a more professional consideration than this.
Derek, if the thought "I suppose I'll have to read the book to get the details" ever crossed your mind, maybe it was a good alert to tell you you should have waited to write about it.

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6. Derek Lowe on March 18, 2008 10:23 AM writes...

Palo, I was waiting for you. I will, in fact, read the book. The MIT bookstore is an easy walk from my workplace, I'm sure it'll be featured prominently.

But if the university and the authors can pitch the book's ideas in a press-release, which they have, they believe that they can, in that space, make a case for why these ideas are worth taking seriously. If there are clear problems with them even at that level, and I think that there are, then those are worth pointing out. My blog post is probably longer than the press release, when you get down to it.

But have no fear, I will read the thing and talk more about it at more length. (I may try to get paid for that part, though, if I can interest someone in the review).

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7. sroy on March 18, 2008 11:00 AM writes...

This is one of the few times I have to unequivocally support pharma (big and small).

No academic committee should ever be in charge of developing/ funding anything on which I have to depend on in a life-or death situation. I have never been a believer in the theory that academics in committees can make a good decision -to put it mildly.

If they want to discover/ develop drugs, they should do it themselves and not drag the rest into their dogma.

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8. jose on March 18, 2008 11:17 AM writes...

1) A thought experiment- what would happen if you shuffled around, round-robin style, the Scientific Advisory Boards (or the equivalent) at 10 pharma/big biotech companies, and had them weigh in on wholly new research? This is the closest I can come up with for the Uber-Oversight Committee. What would the results be? Would they be shocked, amazed, blase about their competitor's work?

2) Surely the potential payoffs (unlimited funding, freedom from NIH cycles etc etc) of an academic commercializing a drug should be a huge incentive to get more academics into drug discovery. Perhaps there is a reason only a handful have been successful (Bruce Molina, a few others)....?

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9. Former pharma Marketing Exec on March 18, 2008 11:26 AM writes...

It would be nice if some of the comments here were from those not so obviously partisan with pharma.

This idea actually fits very nicely with the proposal we heard about last week by CPER (on the Pharmalot site).

However, I do think that top line researchers from industry should be represented.

There is a very real need to fix the current system, costs have gotten way out of hand.

I am not prepared to say this is the best answer or even THE answer, with a little tweaking - who knows...

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10. MTK on March 18, 2008 11:44 AM writes...

I don't necessarily have a problem with the involvement of academics per se. They have a role, although I'm not certain it's here.

What turns me off about this idea is how incredibly dated it seems. Taking an industry and centralizing planning and decision making is something the Labour Party would have proposed in the early 70's. Can't they come up with something a tad more fresh?

I do have to chuckle, however, at the notion that a "public, non-profit", in other words government, committee is somehow going to make the process less political. That's a good one.

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11. Sigivald on March 18, 2008 11:51 AM writes...

I have an instinctive distrust of plans that call for a board of dispassionate technocrats to step in and do things that the market is supposedly doing by itself. It’s not that such things absolutely can’t work, but my default belief is that they won’t work as well as their planners hope.

Well, Mises would say that such things really can't work, at least not usefully, and definitely can't work as well as their planners hope, ever.

Technocrats (or central committees of any composition) are lousy at making useful value judgments, whereas markets are absolutely superb at it, simply due to information access - more specifically, their utter lack of it compared to the combined valuations of millions of customers.

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12. SRC on March 18, 2008 12:12 PM writes...

Having had experience in both academia and industry, let me make a modest proposal: we implement the same ideas in academia.

We split academia into teaching and research (not such a bad idea, in some respects), and then have a committee assign research projects to the researchers.

We could write a Five Year Plan to set targets and quotas. What could we go wrong? Maybe have some photos of healthy peasant researchers posing next to rotovaps on the colletive lab to inspire the masses.

Hey, this central planning stuff is fun!

Do you suppose Finkelstein and Temin have any ideas on who might be suitable to call the shots?


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13. MolecModeler on March 18, 2008 12:28 PM writes...

Industry is far from perfect, everyone who works in industry knows that. The upper management have hardly any better idea of what to do than do the academics.

It just gets tiresome to see these high level plans (from industry AND academia) that are not well grounded in the realities of modern drug R&D. I'm all for anything that improves health care, just skeptical of the latest "you've been doing it all wrong, THIS is how you should do it" idea(s).

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14. drewaight on March 18, 2008 1:43 PM writes...

I'm surprised at the anti-academic sentiment in these comments. It's very clear to anyone here that the system is entirely broken, and that the 40% of big pharma revenue spent on marketing is really just the tip of the iceberg. To be clear, most venture capitalists who prefer biotech investment in the U.S. do so on the claims that our unparalleled NIH budget funds more academic innovation than other countries. Taken further one could make a very strong argument that the financialization and MBA-ization of drug development is precisely what has led the industry to the risk(innovation) aversion and over-marketing of me-too therapeutics.

No the idea of a centralized planning committee doesn't sound particularly sound to me either on the surface. However I'd rather trust academics with my clinical trials than whoever was in charge of the Vytorin or Avandia debacles. The business of healthcare in essence consists in profiting from the sick and disabled and therefore will always be somewhat unseemingly.

I don't understand why the government can't simply purchase phase II therapeutics from smaller drug development firms, take them through the clinical trials themselves and provide the drugs as a public service. I'd feel better about shouldering the tax burden for that endeavor than the Fed bailing out Bear Stearns at any rate.

my $0.02

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15. CMC guy on March 18, 2008 1:57 PM writes...

While not wishing to mock intellectual/academics the proposal as portrayed does seem rather ludicrous as a viable fix and Derek plus comments have stated or illustrated some reasons. The press release did not suggest the book is really meant to be provocative to spur thinking (because agree problems with current system) but I cringe as think DDC/Committee controlled process would likely end up as another huge ineffective barrier then than being a pathway to new drugs. Do they address how would Legal and Regulatory issues be handled? Does one sue DDC if harmed? There is too much Silo thinking now that impedes drug development, both internal and external, and we need greater cross fertilization not fragmentation. I also would like to see Sales & Marketing get relative less pay & perks but doubt that will happen soon and since they generate the revenue to support R&D do behold to them.

The noted goal of reducing US burden for global drugs seems worthwhile although plan appears to offer public verses private shift of cost. Likewise turning away from chasing blockbusters is admirable and should indeed be encouraged. Ultimately comes down to whether investors and markets are willing to wait longer and get less return therefore requiring a change from get in and out quick with biggest pile as this mentality infects the decision process that is often counter to R&D reality.

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16. ASBO on March 18, 2008 2:29 PM writes...

Hey Drewaight,

I think you miss the point here. Drug companies are, believe it ot not, rather good at the whole development thing. That's what's being suggested here in some ways. I rather doubt that government could do that bit better than pharma. It's getting those quality phase IIs that's the problem. And I'd be careful when mentioning Avandia in such negative terms. Nissen's academic paper that kicked that all off isn't the best piece of work, a fact that's actually been pointed out by numerous groups but rather lost in the media and government scrum. That's a pretty good example of the types of "other" vested interests that are at work here. Pharma might not be perfect but looking at say, the NHS, governments are possibly worse than pharma when it comes to making a mess of things. When it suits them.

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17. Palo on March 18, 2008 4:39 PM writes...

Having had experience in both academia and industry, let me make a modest proposal: we implement the same ideas in academia.

We split academia into teaching and research (not such a bad idea, in some respects), and then have a committee assign research projects to the researchers.

SRC, your idea has been in place for a long time. For the most part, the "split" between teaching and research is already there. The most successful researchers do little or no teaching. And there are committees assigning projects: NIH study groups assign funding.

I still think much of this academia bashing in here is simply mechanical, repetitive and adding very little to a good discussion.

Lets get the facts in the book first and then you do the bashing.

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18. S Silverstein on March 18, 2008 6:24 PM writes...

Not to add another voice to the academic-bashing crowd, except it's deserved. We don't need academics to formulate yet another layer of bureaucracy.

Perhaps pharma needs to spend just a little less on marketing and pay more attention to R&D.

Oh, and by the way, high falootin' academics would be about as good at deciding how to manage industries that actually make a product as they are at politics - and honesty in managing their own affairs, especially when it involves taxpayer money.

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19. SRC on March 18, 2008 7:16 PM writes...

Not really true, Palo, but depends on the university (and to some extent, the researcher). The practice is most prevalent at second- and third-tier schools, where the big fish has a lot of clout. At first-tier universities, they often don't have so much. Also, first-tier departments often have a philosophical antipathy toward dumping all the teaching on junior faculty.

And in any case, I meant separating teaching and research into two organizations, distinct in every respect, including physical location.

Academia is in need of a good bashing, IMO. It's the only sector of the economy not to undergo restructuring, and God knows it needs it. Universities still have essentially the form they had in the Middle Ages, and most function poorly.

If you're unconvinced, consider the lack of coupling between grad student intake and employment opportunities - and that's in the sciences. Now think about the arts...

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20. milkshake on March 18, 2008 8:18 PM writes...

I think more urgent would be to reform FDA to accelerate the drug development, to cut the red tape in the approval process to make the process less expensive. Maybe it is the FDA that needs to be separated - one agency can watch over food safety and the other one can specialise on analysing the clinical trial data and inspecting the pharma plants.

I would bring in more foreign medical graduates to improve physician availability and to drive down their ridiculously high salaries.

I would legislate for more disclosure and accountability, to limit the excesses of the pharma management, I would put celings on CEO salaries and bonuses and ban stock option incentives that encourage the worst, the costliest and most irresponsible decisions.

I would encourage the use of hard bargaining, by the large health plan providers to drive down the cost of medications.

And I would encourage and finance independent non-profit research institutes and universities, to enter drug discovery more prominently, and give them freedom to sell their discoveries and grow as a result.

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21. RKN on March 18, 2008 8:25 PM writes...

From the press release:

Their first bold step is conceptual, recognizing that we all have a critical stake in the products of pharmaceutical research.

Why is that bold? It seems plainly self evident to me.

"It is a two-level program in which scientists and other experts would recommend to decision-makers which kinds of drugs to fund the most. This would insulate development decisions from the political winds," he said.

I agree that one ought to hold off on being too critical (or supportive) of the plan until reading the book, but right off the bat it certainly isn't clear how an advisory body of scientists and experts would be expected to do a better job of deciding which drug discovery to pursue, as compared to the market (not that the latter is by any means ideal). I'll grant that such a body's decisions are likely to be different - but not subject to "political winds"? I hardly think so.

This is a bit off topic, but again the parallels with the oil and gas industry seem striking. With rising oil prices, how long do you guess it will be before some academics propose a similar plan for the O&G industry. Separate the upstream (exploration & production) from the downstream (transportation, refining, & marketing) part of the business, and have government men decide which oil and gas prospects to drill, as opposed to the present way where company men decide that on the basis of profit. And take over the downstream part of the business and turn it into a government cooperative "working for the people." Oh happy days.

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22. futuresellout on March 18, 2008 11:22 PM writes...

At least Finkelstein and Temin have 'put their money where their mouths are'. I am a chem grad student and one day will hopefully be lucky enough to find a job in pharma. However, you would have to be blind to not see the problems that exist in the pharma industry! So, rather than getting on our high horses and arguing for the status quo, perhaps we should have a constructive discussion.

There are a few eternal truths here. 1. research costs money; 2. Business only wants to make money; 3. People get sick; 4. Science can cure said people; 5. Some people are sick but have no money.

The question is what model will best suit all these needs? Perhaps the current thesis, or at least the argument as summarized by Derek is not the right model, but something has to change. Does anyone out there have any positive insight into this problem?

Perhaps oil is the wrong analogy, music might be better. Perhaps if the discovery and manufacture were separated rather than the marketing. This would require some changes to patent law, but imagine if the drug discoverer could get a royalty from the drug manufacturer as a proportion of sales for the lifetime of the drug. There could be multiple manufacturers of a drug thus introducing competition and driving costs down and the costs of discovery would be upset over a longer time period thus offsetting the push to find the next blockbuster every 10 years.

I'm sure there are a tonne of flaws in this idea, but as I said at the start at least it's a start.

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23. Kent G. Budge on March 19, 2008 9:42 AM writes...

It's very clear to anyone here that the system is entirely broken,

Is that really true? Compared to what?

Business only wants to make money

Is that really true? There are easier ways to make money than pharma. Isn't it possible that pharma businessmen take a certain pride in the though that their company is making life a bit better for others? I would, and I'm no paragon of virtue.

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24. Jose on March 19, 2008 10:33 AM writes...

I think it is highly illustrative to notice that *everyone* who has commented so far, who has an active and daily part in the industry thinks this is a truly insane idea. We all realize things are not exactly rosy in our industry, and would dearly love to see that change for the better. I am confident any reasonable proposals would give us pause to consider. However, the reality is that these "solutions" mentioned are so laughable, that all they function as is signposts for how absurdly out-of-touch these experts truly are.

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25. MTK on March 19, 2008 11:48 AM writes...

Well said Jose. My sentiments exactly. We're willing to listen, but in this case we don't like what we're hearing. Insane is a good descriptor.

My reasons why I hate it:

a)government intervention and centralized planning which has been demonstrably shown throughout the late 20th century to not work.

b)it will squelch innovation. Right now discovery companies and biotechs can work on anything they want and anything they think someone, anyone, will pay to develop. In this system, the only things that get developed are the ones this committee gives their stamp of approval on. Any idea which is risky, meaning the committee won't approve it, won't be pursued.

c) there's absolutely no evidence that a team of outside experts would be any better than the industry in choosing what to develop. To support that these experts would presumably be academics and government researchers with no conflicts of interest. You know what that sounds like? A FDA Advisory Panel. The same panels that reviewed the "debacle" data of Vioxx, Vytorin, and Avandia and recommended approval of all of them. (BTW, I don't buy the "debacle" tag.)


Manufacturing is a small part, generally around 10%, of the cost of a drug. The majority of the cost goes to recoup R&D costs and to marketing, so splitting up the manufacturing won't make a bit of difference, especially since the manufacturing groups at pharma are continually beaten to a pulp by management over costs anyway.

As for your criticism that many of us are just taking potshots and not coming up with a solution, my response is that the market will come up with a solution eventually. As pharma margins get squeezed, they will adjust or a new company with a different business model will emerge.

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26. Jene on March 19, 2008 12:32 PM writes...

Palo said- " I still think much of this academia bashing in here is simply mechanical, repetitive and adding very little to a good discussion."

Actually we don't bash academics enough. When you dissolve tenure (and see who's still doing research), then I'll pat that lot of dainty scoundrels on the back. Tenure is awarded to political hacks who have the right academic blood line.

But why not require the Government to carry out all clinical trials? Companies will pay for a certain degree of service and likely be exempt from liabilities if the drug turns out to hurt more than help.

Anyone consider this?

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27. Frustrated Reader on March 19, 2008 8:57 PM writes...

So, I checked the book out from the library, and I'm about a quarter of the way through it right now. I must say, I've found myself getting angry at about a rate of two times every three pages. One of the things I dislike about the book from a format point of view is they take the magazine approach and have quotes or "main points" from the text inset in large font so that you "get it" easier.

My favortie so far is from p. 35, where the authors state: "These large, multination pharmaceutical firms account for only part of the story of today's innovative drug exploration and development. University laboratories--some of which are funded with your tax dollars--and small biotech firms are a significant and growing source of new drug candidates, too."

Small biotechs, sure, but you're going to put universities first in that sentance? It just seems like it's pandering to their audience with that.

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28. Still Scared of Dinosaurs on March 20, 2008 12:03 PM writes...

I am amazed by the number of commenters here who apparently don't understand the difference between drug discovery and drug development. Anyone who thinks someone should "just run the trials" (see comments 14 and 26) is wicked clueless.

The MIT guys clearly don't understand the process or they would would have proposed a three-stage breakup. 1) Discovery up to Phase 1, 2) Development up to the filing/defense stage, and 3) Commercialization.

If you want a mechanism for transitioning between stages how about an auction?

Personally I wouldn't trust academics to run trials. Anyone who has been through the Phase 1-4 mill knows that bio/pharma/CROs are a lot better at running trials than academics or the gov't, on average. I've been on record here defending FDA against people who want to blame it for the state of the industry - no basher here. But I know what I've seen.

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