Ezra,

Its the completely wrong path. The prize exists today-- its called profit. And the pharma companies behave exactly like they are supposed to-- as long as people are willing to pay for drugs with minimally incremental benefit over generic ones, they'll keep making them. The day we stop paying for minimally incremental benefits, they'll stop development of the next Clarinex in a heart beat. Which gets to...

The Clarinex example, as is many of these related criticisms of the pharma industry, are 5 years stale, going on 10. Incentives for drug companies are global incentives- of which only 50% is from the US. As Europe increasingly stops paying for the Clarinex's of the world, pharma is focusing less of their efforts there. Which is what we are increasingly seeing from these companies. So rather a complete shift away from patents (Stiglitz may be a good economist, but a bad scientist: there isn't a molecular pathway around that doesn't have two to four competitors and they all have mutually exclusive patents that prevent generic copying not competitive innovation) we should stop avoiding the tough issue: unlike Europe, we haven't found an effective way to tell people "no" for health care purchasing of drugs like Clarinex. Let's tackle that issue, which is the tough one. As long as people are willing to pay for Clarinex, pharma companies will develop those drugs regardless of any prize system that is developed. You've got the wrong diagnosis of the problem.

and it was said to be effective, for longer. There was little evidence of that.

I'm pretty sure this is factually incorrect. The claim from Schering was just as effective, with less frequent dosing. Which is the case.

Who funds the research while the competitors are waiting to see if they win the prize?

Who funds the losers?

We have had a very good system for funding basic research which was started near the end of WWII. The appropriate government agencies (NSF, NIH, etc) give out grants to those making proposals. The proposals are vetted by impartial teams of experts in the fields and the use of the grant money is overseen by grant administrators.

What has changed is that formerly the deal was that any discoveries became they property of the government since they were paying for it. Now the discoverers get to privatize their discoveries and the public gets nothing.

The ethical corruption extends to universities which now take part ownership in firms designed to exploit the discoveries.

What you get in Clarinex vs the Polio vaccine with this system.

Prize based research will only favor the existing big pocket players. It's a really stupid idea even if it appears cute when applied to self-driving cars and spaceships.

I don't understand, is your problem that this company is being misleading/lying? Or that they are too successful at marketing?

Because otherwise, basically what you're suggesting is that the US government forcibly buy off the patent of only certain drugs which would be - problematic.

Also, I think there is a problem with prize-based solutions applied to medicine. While our current patent system undeniably makes short-term pharmaceutical prices much higher, it drastically increases the amount of new medicines that are created in a very open-ended way.

Prize-based systems work when you have simple objectives that result in some kind of status boost. It also helps when the prize money is not the end per se, because it hardly ever covers the expenses required. This is why rockets work well; once you've built them you get the publicity boost, plus a market where it is difficult to copy your product. Pharmaceuticals don't seem to fit into this category.

In the example you give here, it doesn't seem like the Pharmaceutical companies are the bad actors, it's the doctors who don't prescribe the generic alternative to Clarinex and create a market for the expensive, on-patent product.

I like the idea of a prize-based system to supplement the current system, but don't think the current system should be simply gotten rid of.

Schering spent billions of dollars convincing doctors to prescribe it

Call me crazy, but I'm guessing this is an exaggeration by an order of magnitude, especially considering that Clarinex pulls in 800M /yr.

Link for revenue assertion here:

"Schering makes about $800 million a year on the drug."

http://industry.bnet.com/pharma/1000542/schering-plough-sepracor-sign-deal-to-end-clarinex-exclusivity-in-2012

The usual reason that my patients ask for Clarinex is that their insurance doesn't cover over the counter meds. I have only one or two patients who take the stuff, because most people have a branded copay that is higher than generic loratadine (a 300 count bottle is about $15 at Costco).

> making sure the innovation is
> good innovation. Take the
> case of Claritin, the wonder
> anti-allergy drug. In 2001,
> loratidine, Claritin's active
> ingredient, went off patent.

OK, here's the flipside of that: 4 in my family, all with severe ragweed allergy. Claritin is as described a miracle antihistamine for 2 of us. For 1 it does absolutely nothing: no effect on the sneezing, but no side-effects either. For 1 it causes severe side-effects including nervousness and vivid nightmares.

Now, as long as Claritin and Zyrtec were both prescription no problem: our doctor could convince our health plan to approve 2 Claritins and 2 Zyrtecs. As soon as Claritin went OTC? Well, forget about Zyrtec - first they raised the copay to $80, then just refused it (IIRC full price was $120/month for something that was already OTC in Canada at $15/mo).

Same thing with the inhaled steroids before Flonase went generic: Rhinocort, the standard and cheaper one, worked for 2 of use, not at all for the other two. But getting Flonase required my doctor to spend 30 minutes(!) on the phone with the insurance company at least twice/year - very good use of her time.

So how will Ezra's perfectly rational drug development system handle this variation in human response? Because let me tell you, before inhaled steroids for seasonal allergy were developed there were summers when I wasn't sure life was worth living, and I wasn't alone in that. Because Rhinocort comes along first I am out of luck?

And I ask this as a person who generally support's Ezra's analysis.

Cranky

Patients ask for Clarinex and the like because of Direct to Consumer (DTC) advertising. They see it on TV and want it. Who would not want to be Claritin clear?

We should go back to the way it was when there was no DTC advertising. Docs prescribe this, at least in part, because patients ask for it. When the doc has 10 minutes with a patient, how much time do really think they are going to devote to talking them out of a drug?

As for generic substitution, this is rapidly becoming the norm in most plans......so the doc can write the script for Zoloft, for example, but when it gets filled, you will get the generic. What we have to do is stop the demand creation for the drugs with no generic substitute available.

In a sense, there are already incentives out there - on a small scale - for drug development that target very rare, severe conditions. The US, EU, Austrailia and Japan all have some version of this legislation, which creates incentives through tax breaks, patent protection and sometimes direct subsidy through grants. It might not be a bad idea to use the concept of an orphan drug to try to direct research in the direction policy makers want. Say, work towards the development of an anti-inflammatory at a certain price with a certain risk profile that is the same or marginally more effective than existing alternatives.

Where to start? Let me offer several points.

1. The prize system -- at least as proposed by Sanders -- does not work 'alongside' the current patent system. It replaces the monopoly to make/use/sell with monopoly claim on a prize from a general fund. This is not a minor change. The market, as we know, distributes decision-making. Payor X can a drug merits its price while Payor Y disagrees. This would concentrate decision-making. If you don't get the prize, you get nothing.
2. If we believe that many drugs of minimal value are being marketed, let payors by all means require pharmaco-economic data for reimbursement, or employ formulary tiering to enforce costs back on patients who choose therapies with minimal incremental benefit. Then one can at least have competition among payors.Indeed, this already exists now.
3. How many of these 'minimal value' drugs are there? I tend to agree that Clarinex, like Nexium, are minimal value therapies. These represent 'life cycle management' -- the maintenance of a branded sales post generic expiry. When one looks at the list of top 200 drugs (2006 data, alas) one does not see primarily life-cycle management. Indeed, of the top 30 drugs, only 5 by my count are LCM, and of these at least three are plausibly beneficial. So why upset a system that has done well to fix a low error rate? Austerity at the payor level would be a better fix. Perhaps Medicare D should not pay for Nexium? Perhaps Kaiser should charge 50% of the bill back to patients. Then only those who really need (and there may be some) it will take it.
4. Bernie Sanders proposes a $80B/year fund. Yet the top 100 drugs alone represented > $240B in sales in 2006. Assuming ~30% of sales derive from the US (I believe the actual figure is higher), we are done with Pharma support at this point. Why is this a good idea?
5. Indeed, determining the "correct" amount of prizes (why not $40B, $80B, $200B) shows the danger of aggregating decision-making. Now, the total size of the Pharma market is set by many individual decisions. Why is it a good idea to replace this with a top-down process?