Yves here. This post provides compelling evidence as to why running health care, and particularly pharmaceutical development, on a market basis is a bad idea. One has to wonder how much prejudice leads to the neglect of deadly diseases that afflict many millions….but in tropical areas, stereotyped as poor. The post does not mention as a possible driver that stock investors view life-saving drugs that would be sold in huge numbers, but significantly in poorer countries, as much less sexy than drugs to treat the ailments of the affluent.
By Payal Arya, Post-Doctoral Fellow, Bentley University, Center for Integration of Science and Industry and Fred Ledley, Professor of Natural & Applied Sciences and Management, Bentley University and Director, Center for Integration of Science and Industry, at Bentley University. Originally published at the Institute for New Economic Thinking website
The World Health Organization (WHO) estimates that 1.7 billion people around the world are in need of measures to prevent or treat neglected tropical diseases (NTDs), conditions that collectively account for as many as 200,000 deaths/year and a burden of disease running in the hundreds of billions of dollars per year. This vast unmet medical need reflects the global pharmaceutical industry’s focus on developing products for US markets, where efficient channels for product sales and few limits on drug pricing provide companies with the opportunity for robust returns on investment and profit. US markets, however, account for less than 4% of the global burden of disease. The greatest disease burden is associated with conditions prevalent in low- and middle-income countries, where the available market is typically inadequate to justify the investment cost; a classic instance of market failure.
From 1975-1997, less than 1% of new drug approvals in the USA and EU were indicated for tropical communicable diseases. A decade later, from 2000-2011, only 1% of new drug approvals (New Chemical Entities) were indicated for NTDs, and only 1% of all clinical trials involved products that might address this unmet medical need. A new report in the British Medical Journal Open (BMJ Open) from the Center for Integration Science and Industry at Bentley University demonstrates that this trend continued through the decade before COVID (2010-2019) with only 1.8% of the new drugs indicated for tropical diseases. The BMJ Open study further demonstrates that, while half of the new product approvals were for conditions in the top quartile of US disease burden, there was no association between the number of product approvals and conditions contributing the most to the global disease burden.
Classical economic theory posits a central role for the government in rectifying such market failures through regulation, subsidies, or public investments. These interventions are variously designed to adjust either the cost basis for bringing products to market or the structure of the market such that the potential returns to industry are sufficient to warrant private investment. These principles underlie a number of policies in the US (and analogous policies in the EU) intended to incentivize industry development of drugs with characteristics that have made industry investment unattractive. These include the Orphan Drug Act for rare diseases and programs that provide expedited review of products for selected “serious diseases” with attributes that make development relatively unfavorable, including special “fast track”, “breakthrough”, “accelerated”, and “priority” review programs. These programs reduce the requirements, timelines, or costs of development, provide tax breaks, or create indirect subsidies (vouchers) to reduce the net cost of development or provide extended patent protection to increase the market potential.
The orphan drug and expedited review programs have dramatically changed the landscape of pharmaceutical development. They have helped create more than 500 products for “orphan” diseases since 2000 with almost 60% of all approvals between 2010-2019 taking advantage of at least one designation for “expedited” review. While these policies were primarily designed to address unmet needs in US markets, the FDA has issued guidance on the application of these policies to incentivize product development for NTDs, and one program, the “Tropical Disease Priority Review Voucher Program,” focuses directly on such diseases.
But the critical analysis in BMJ Open not only shows that, despite such guidance, only meager progress has been made in developing products for diseases with the greatest disease burden, and that programs for expedited review may actually be making things worse. Supported by funding from INET, the study examined 387 drugs approved between 2010-2019 and found that 207 of them were granted a “priority review” designation. Only seven of these, however, specifically target tropical diseases. No less worryingly, the research found a negative association between drugs being designated for expedited review and the burden of disease associated with the conditions they were approved to treat. Thus, programs for expedited review may be preferentially reducing the development costs for conditions with lesser disease burden, potentially making investments in addressing the most significant disease burdens even less appealing and exacerbating the market failure further.
What initiative might rectify this situation? A variety of non-profit entities and public-private partnerships (PPPs) have emerged to tackle this unmet need. These include a number of product development partnerships (PDPs) focused explicitly on developing drugs, vaccines, or diagnostics for conditions prevalent in low- and middle-income countries. Examples of such partnerships are the Global Alliance for TB (TB Alliance), Medicines for Malaria Venture (MMV), and Drugs for Neglected Diseases Initiative (DNDI). These entities raise capital primarily through government funding and philanthropic contributions and typically rely on partnerships or contracts with the private sector for product development.
A survey of funding for research on products for neglected diseases conducted by Policy Cures Research has identified more than $60 billion in total funding for product development related to “neglected diseases” (not including Coronavirus) from 2007-2022. Contrary to the popular perception that these initiatives have been driven by private philanthropy, the data show that 66% of the funding came from public institutions (government): 20% from philanthropic sources: and 13% from industry.
The money supported $13.7 billion for basic research on neglected diseases; $13.6 billion on new drugs; and $21.5 billion on vaccines over these 16 years. Nevertheless, the BMJ Open study could identify only two new drug approvals in the period from 2010 to 2019 for tropical diseases that were sponsored by PDPs. One was Pretomanid approved in 2019, developed by TB Alliance; the other was Moxidectin approved in 2018, developed by the Medicines Development for Global Health. (Note that the BMJ Open study did not include vaccines.)
This leads to a crucial question: Can the non-profit sector provide the firepower necessary to address the global burden of disease?
In a comprehensive study of the global non-profit sector, the late Lester Salamon and his collaborators defined the “broad non-profit sector” as comprising “entities that are formal organizations having an institutionalized character; constitutionally independent of the state and self-governing; non-profit-distributing; and involving some degree of volunteerism” and documented their growing financial resources, employment, and impacts. This research ascribes growth of the non-profit sector over recent decades to the widespread adoption of the “neoliberal consensus” that many social services might be provided more efficiently and effectively through partnerships with the private sector (including both for-profit and non-profit entities) than by government or markets alone. Significantly, this research also showed that, contrary to popular perception, the non-profit sector was not supported primarily through philanthropy, which provided only 11% of financial support for global non-profit enterprise (data from 22 countries, for 1995), but that proceeds from commercial activities provided 49% of the financial support and government provided 40%.
The panoply of non-profit entities committed to addressing the global burden of neglected diseases through advocacy, education and research, health, or social services related to neglected diseases are well within the mainstream of traditional non-profit activities identified by Salamon and his collaborators. One could also argue that PDPs focused on discovery, development, or commercialization of novel pharmaceutical products are not conceptually different than other non-profits involved in commercializing goods or services in the healthcare or educational sectors. The question, however, is whether non-profit business models can really rectify the market failures that have led to a paucity of products for neglected diseases.
In our view, the crucial feature of non-profit entities is not the absence of profit, but rather the fact that they are characteristically prohibited from distributing cash resources to shareholders. Since 2010, public (for-profit) biopharmaceutical companies have distributed almost $1.6 trillion in cash to shareholders through dividends or stock buybacks, representing approximately 16% of their total revenues, an amount slightly larger than their total profit (net income). Thus, while the absence of cash distributions to shareholders could contribute to lowering drug prices or realizing a return on investment, the size of the effect is unclear. Even putting all that money back into research might not lead to a quantum leap in the production of the drugs most urgently needed by the world’s poor.
Non-profits are more likely than for-profit firms to attract philanthropy to support product development or treatments. The available data suggests, however, that philanthropic contributions comprise a minor fraction of the capital resources required to address neglected diseases. Nor is there evidence that non-profit entities benefit substantially from discounted or donated goods or services, or that non-profit firms can systematically develop new products more efficiently or at a lower cost than for-profit firms.
Non-profits might also face some peculiar problems of their own. Since most PDP activities are likely to be tax-exempt, non-profit initiatives may not benefit from government incentive programs that reduce corporate tax burdens or provide tax credits, unless such benefits can be sold. Thus, it is not evident that the financial model of non-profit enterprise would really address the market failures confronting neglected disease. The fact that two out of seven drugs for tropical disease described in the recent BMJ Open paper were developed by non-profits (TB Alliance, MDGH) suggests that more research is required to understand these business models and the role they can play in addressing the global burden of human disease.
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Shifting from for-profit to non-profit model is putting lipstick on a pig. We already have a public funding mechanism and a large pool of university labs and hospitals that do the research. Just change it so that IP developed from publicly funded research is in public domain or can be licensed at a low price. Most drugs are developed with public funding anyways.
“We already have a public funding mechanism and a large pool of university labs and hospitals that do the research. Just change it so that IP developed from publicly funded research is in public domain or can be licensed at a low price. Most drugs are developed with public funding anyways…”
Perfect, and extensive described and explained by Marcia Angell (chiefly) and Arnold S. Relman. Both doctors and editors of the New England Journal of Medicine and Harvard Professors.
https://www.nytimes.com/2004/09/14/health/policy/14conv.html
September 14, 2004
A Doctor Puts the Drug Industry Under a Microscope
By CLAUDIA DREIFUS
https://www.nytimes.com/2004/09/06/books/06masl.html
September 6, 2004
Indicting the Drug Industry’s Practices
By JANET MASLIN
THE TRUTH ABOUT THE DRUG COMPANIES
How They Deceive Us and What to Do About It
By Marcia Angell, M.D.
Most drugs are developed with public funding anyways.
Their was legislation on the books that limited profits from publicly funded developments – but of course the payola from lobbyists got that law gutted. So now we have direct payoffs going to owners of existing stock….to boost the price of stock on the secondary market (wall street) and funnel the profits of the (basic baseball card trading scheme) without any real world contribution to development of products. Just turning public expenditure into a private income stream without strings attached.
It is like..Step one = input taxpayer dollars into research and science and develop breakthroughs -Step 2 Give this output to the private sector Step 3 private sector inputs this taxpayer gift to a fancy conversion process whereby bags of laundered cash are delivered to finance capital predator’s pockets. The sheering complete and at industrial levels. Of course Step 4 – News broadcasts about how well the stock market is doing…. intimating how that means the USA is doing well… meaning of course to imply what a great job our congress is doing because, of course, the financial innovations have only made our country great again.
Rinse and repeat – Public private partnerships – I guess the Public partner likes the Sh%t kicked out of it by the private partner
“Since 2010, public (for-profit) biopharmaceutical companies have distributed almost $1.6 trillion in cash to shareholders through dividends or stock buybacks, representing approximately 16% of their total revenues, an amount slightly larger than their total profit (net income).”
“Most drugs are developed with public funding anyways…”
The change came in 1980 with the closing of the Carter administration. Before then, drugs developed with public funds, as in universities, were public drugs. After the law, described by Marcia Angell, drug companies could buy monopoly rights and charge monopoly prices for as long as a patent could be kept.
There came the first revolution in drug pricing. The second revolution was setting drug prices beyond monopoly rates but according to how valuable a drug was rated for a patient (sort of your money or your life pricing).
Sort of “your money or your life” pricing:
https://www.nytimes.com/2006/02/15/business/15drug.html
February 15, 2006
A Cancer Drug Shows Promise, at a Price That Many Can’t Pay
By ALEX BERENSON
Doctors are excited about the prospect of Avastin, a drug already widely used for colon cancer, as a crucial new treatment for breast and lung cancer, too. But doctors are cringing at the price the maker, Genentech, plans to charge for it: about $100,000 a year.
That price, about double the current level as a colon cancer treatment, would raise Avastin to an annual cost typically found only for medicines used to treat rare diseases that affect small numbers of patients. But Avastin, already a billion-dollar drug, has a potential patient pool of hundreds of thousands of people — which is why analysts predict its United States sales could grow nearly sevenfold to $7 billion by 2009.
Doctors, though, warn that some cancer patients are already being priced out of the Avastin market. Even some patients with insurance are thinking hard before agreeing to treatment, doctors say, because out-of-pocket co-payments for the drug could easily run $10,000 to $20,000 a year.
Until now, drug makers have typically defended high prices by noting the cost of developing new medicines. But executives at Genentech and its majority owner, Roche, are now using a separate argument — citing the inherent value of life-sustaining therapies.
If society wants the benefits, they say, it must be ready to spend more for treatments like Avastin and another of the company’s cancer drugs, Herceptin, which sells for $40,000 a year…
I believe that profit must be removed from all research especially amd specifically from medical research while acquired IP used as a leverage to steer Big Pharma investments toward what is most needed and changing emphasis from treatment to identification of specific sources of diseases and hence healing by mostly by removal of circumstances and conditions promoting diseases. It is called preventive medicine that must become overwhelming focus of investments in medical research as it was now forgotten consensus among medial professionals just fifty years ago.
It is profit that stands the way as no Wall Street billionaires want to soecd a cent to make people healthy and hence free their health from corporate exploitation.
Nonprofits should not be asked to do more because they have more limited resources than for-profit companies. Instead, it would be better to require Mega Pharma to donate a percentage of their profits to pro bono research.
Instead of Mega Pharma donating their profits – maybe we should call it – giving it back because, their profits were not of some great works on their part but, were from a great theft from the public that continues unabated by tax or law.
IIRC a long time ago, there were laws against advertisement of pharmaceuticals directed at consumers (as opposed to providers). As someone has commented elsewhere, “that was a better nation”.
What is needed is a massive government run R&D operation which then sells licensing rights for a song to big pharma who then produces and gouges the public. I want to say /sarc, but in reality, that is the business model our neoliberal capitalist leaders will give us. A nonprofit would take money from rich people, whereas government could just suck the capital out of ordinary people without making rich people go to the trouble of setting up a tax shelter/”non-profit”.
With full acknowledgment to this post and previous comments:
I have been studying Big Pharma for a long time as part of my day job. Big Pharma is now in the business of buying Little Pharma for a few billion here and a few billion there. This obviates the need for a research wing, which I well remember, of Big Pharma. These days Big Pharma is mostly marketing and patent manipulation that we can do without. Little Pharma is funded by those who want to “cash out with a unicorn” (PK’s locution IIRC) and the National Institutes of Health in the USA and equivalent agencies in the rest of the world. It is way past time to either nationalize the lot, or take back with the force necessary, the rights that come from the development of novel drugs in the first place. Would this work? Absolutely. Big Pharma can deliver products the last mile, while there are thousands upon thousands of biomedical scientists ready, willing, and able to do the work and do it well. Apparent dead ends will often turn into triumphs of modern medicine. Committed scientists given the freedom to “do science” as it should be done will find answers, sometimes to problems we did not even know were questions. Their answers will benefit all of us.
The next step is to ban direct-to-consumer (not patient) advertising of all drugs, prescription and over-the-counter. When people need treatment for minor aches and pains and seasonal colds and the like, the local pharmacist at the local pharmacy can give them advice. Yes, I remember that world. It worked very well.
After that nationalize all hospitals and return the so-called non-profit medical centers to true public institutions. Our local tertiary care hospital began as the local General Hospital run by the local Hospital Authority. The latter is nominally still “in charge” but has no power or authority over the Hospital Administrator (now called CEO) who makes in the mid-seven figures for his trouble as the figurehead of an organization based in an adjacent state (one that was recently gobbled up by a larger entity). Nice work if you can get it. Time to return to the former model and local control that leaves no one out of the calculation. Dermatologists who want to make money in the cash trade will still get rich but be viewed by their colleagues and society in general with the same disdain as bookies and bootleggers (arguably more honorable professions). The “DR SKIN” who owns the Lamborghini I saw in the parking lot the other day belongs in the for-profit medical ghetto with his PA’s who give the Botox injections and pocket half the fee as commission when they refer the patient to the practice. As for private clinics, they can have a place at the far margin for the filthy rich who cannot abide sharing space with the hoi polloi. But there are solutions to the filthy rich, also.
Then make all education a benefit funded by general revenues, including elementary and secondary education and graduate school, medical school and dental school. Including allied health professional school: Nursing, Physician Assistant, therapists of all kind. No one begrudges a highly skilled professional her pay, but there is no reason a “stent installer” (aka Interventional Cardiologist) should “make” $3M a year, mostly from Medicare, i.e., the rest of us.
In the meantime, reanimate vocational education so that the craftsmen and craftswomen we need to keep our built environment in good condition are allowed to do so. While we are at it, raise Social Security benefits so that they provide a retirement benefit, NOT “entitlement,” worthy of the name for all. Yes, including those who do not necessarily “need” it. Universal benefits are the correct thing to do, even for Ben Shapiro. If that 40-year-old wants to do run his mouth until he is 68, 78, or 88, more power to him! However, I’m willing to state, not bet, that young Mr. Shapiro has never been a carpenter or bricklayer’s helper or waiter or ‘labor gang’ member in a chemical plant, or an HVAC installer who crawls around in attics and crawl spaces and othewise who works on his feet with his body for 8-10 hours a day in all kinds of weather.
I almost forgot: Universal child care for working parent with children. Or better, a return to a political economy in which one wage earner can support a family. I remember that world, too.
And finally: a new and improved National Health Service modeled on Aneurin Bevan’s original in the United Kingdom after WWII. That is: ALL medical care (including, counseling of all kinds, physical therapy, dental, vision, etc.) no-charge at the point of delivery. NOT FREE, but paid out of general tax revenues, just like public streets, schools, and libraries (such as these still exist). When the people no longer fear that the nagging pain in their abdomen might not actually bankrupt them, they will ask for a diagnosis before it is too late.
Hey, a guy can scream. And dream!
The rich will still be rich, and everyone else will he much better off. Including the rich.
Very good +2,024%
I worked for non profit pharmaceutical company for 10 years. We flew first class, and spent money lavishly without having to answer to shareholders. I agree with the first comment by voislav.
Perfect. It’s like those charity organizations, 90% of the money they collect serves to pay their own payroll lol. I never donate to those people, they serve themselves. I don’t believe in not for profit, as simple as that.
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Development of drugs should be made by national institutes/organizations and the knowledge/process made available to whoever wants to produce the drug. No patents, nothing. Wild west capitalism, whoever wants to put a plant and produce the drug sells it.
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Back to the tropical disease thing, the US and Europe are not tropical…. yet.