A new global bureaucracy?

For years, international activists have tried to argue that patent protection for new drugs is incompatible with global health. They may have finally found a sympathetic ear. Later this month, the World Health Organization (WHO) is convening its Intergovernmental Working Group on Intellectual Property (IGWG) in Geneva to consider “redrawing” global intellectual property rules. This Group intends to undermine patents and increase government’s role in R&D in order to improve the availability of medicines in poorer countries. But by effectively nationalizing R&D, the WHO risks scaring away those entities in the best position to engage in risky and expensive drug research: big pharmaceutical companies. A better way to boost commercial research on neglected diseases would be to lower research costs and improve the likelihood of private companies’ turning a profit.

The IGWG is still in its early stages, but it has already shown a troubling deference to many of the most prominent anti-patent groups.These activists want to replace the existing intellectual property regime for drugs, which is founded on patents, with a legally-binding global treaty for medical research and development. They hope that the treaty would create a new United Nations bureaucracy that would set a global agenda for drug R&D, including identifying research priorities, allocating funding, awarding research contracts, and distributing cash prizes to successful inventors, all in lieu of patents. The UN would license any of the resulting products for sale at marginal prices.

The establishment of such a global R&D bureaucracy would be highly counterproductive. First, giving bureaucrats the power to set a global research agenda would politicize drug R&D. High-profile diseases would hog the attention, and expensive medicines would be favored over cheaper but more effective prevention measures. In a centrally directed system—such as the British National Health Service—resources always flow to the loudest pressure groups.

Second, the notion that a drug bureaucracy can pick “winners” is not supported by recent history: consider, for example, the U.S. government’s ill-fated attempt to find a cure for malaria in the 1980s, which produced little other than a $60 million bill for taxpayers and corruption charges for several project members. A global drug bureaucracy would transform innovative, research-focused drug companies into highly regulated utilities dependent on government contracts. In other regulated utilities—such as water, electricity, and gas—companies do the bare minimum to fulfill their contractual obligations. This is hardly a recipe for medical innovation.

Finally, using state-funded prizes as the major incentive for R&D is extremely problematic. Advocates of a prize system for drug research cite the example of the Ansari X Prize for a reusable spacecraft as evidence that such a mechanism can work in the pharmaceutical sector. However, engineering and drug research require completely different business models. Pharmaceutical R&D entails enormous up-front expenditures and many unknown risks—both scientific and regulatory—since the vast majority of drug candidates fail. Without the lure of temporary monopoly profits that accompany drug patents, many firms would shift their capital elsewhere.

Instead of dismantling patents, we should make commercial R&D work better for the few tropical diseases that remain under-researched. To that end, we should build on successful legislation like the U.S. Orphan Drug Act (ODA), which led to an explosion of new treatments for rare diseases with small patient populations. Enacted in January 1983, the ODA offers tax credits, seven years of market exclusivity, and consultations with Food and Drug Administration (FDA) staff to companies that develop drugs for these populations. In the first 16 years of the bill’s life, the average annual number of new drugs for rare diseases was 12 times greater than it was during the previous decade. Tellingly, Japan and the European Union have embraced similar legislation.

Building on the ODA, in 2006 researchers at Duke University proposed a transferable voucher system for developers of drugs for neglected diseases, an idea that became law as part of the Food and Drug Administration Amendments Act of 2007. Under the new system, companies that develop a new drug for a neglected disease will receive a voucher for FDA “priority review” of any of their other drugs. Researchers estimate that priority review will lead the FDA to evaluate the drug application in about six months, which is 12 months faster than a standard evaluation. For companies with a potential “blockbuster” drug, getting to market a year sooner might mean hundreds of millions of dollars in additional revenue. Smaller companies or nonprofits that developed drugs for neglected diseases can also auction the voucher to the highest bidder, raising millions in additional funds for new research.

Starting next September, the vouchers will be available for treatments of 16 neglected diseases or “any other infectious disease for which there is no significant market in developed nations.” These types of policies show how free markets can work for even the world’s poorest citizens. We hope that the activists are paying attention, in Geneva and elsewhere.

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