Using Value-Agnostic Incentives to Promote Pharmaceutical Innovation

By Madl, Amy C. | Stanford Law Review, May 2019 | Go to article overview

Using Value-Agnostic Incentives to Promote Pharmaceutical Innovation


Madl, Amy C., Stanford Law Review


Table of Contents  Introduction  I.   Conceptualizing Pharmaceutical Innovation II.  The For-Profit Drug Development Model III. Value Agnostic by Default: Existing Government-Backed Incentives    A. Therapeutic Gaps and Rationing Rhetoric    B. Incentive Distortions in Current Proposals    C. Value Agnosticism in Pharmaceutical Innovation     1. Value-agnostic federal drug development subsidies        a. Direct funding: Bayh-Dole and academic medicines        b. Indirect funding: tax-based subsidies        c. Indirect funding: federally mandated         coverage requirements     2. Value-agnostic objective-oriented programs        a. Priority review vouchers        b. Patents for Humanity        c. Generic entry incentives IV.  Value Agnostic by Design: Patent Buyouts to Promote Public Health    A. Patent Buyout Scheme     1. Sale-triggered option rights     2. Contrasting patent buyouts with Bayh-Dole march-in        rights    B. The Limits of Limited Intervention Conclusion 

Introduction

Approximately 125,000 Americans die each year because they do not take their medications as prescribed. (1) High prescription drug prices contribute to medication nonadherence, with millions of Americans forgoing their medications because they cannot afford them. (2) For example, only a small fraction of the estimated 3.2 million Americans infected with hepatitis C, a virus that can cause liver cancer and cirrhosis in untreated patients, (3) are treated with potent antiviral medications like Gilead's first-in-class hepatitis C drug Sovaldi (sofosbuvir) [4] Despite cure rates above 95% when using Sovaldi in combination with other medications, [5] many state Medicaid programs only cover Sovaldi's $84,000 price tag for their sickest patients. [6] Because pharmaceutical companies like Gilead own patents covering their lifesaving drugs, (7) competitors cannot make, use, sell, offer to sell, or import lower-cost generics until the patents expire or are invalidated. (8) Many patients will therefore die prematurely before Gilead's hepatitis C patents begin to expire in 2029, (9) twenty years after Gilead filed its oldest patents covering sofosbuvir. (10)

U.S. drug prices are largely driven by what the patent-constrained market will bear; "there is little evidence of an association between research and development costs and drug prices." (11) Monopoly pricing is not unique to the pharmaceutical industry. (12) In many industries, the price of a good, such as the iPhone X, is typically (and unsurprisingly) what consumers are willing to pay. (13) But few goods produce as many positive externalities as pharmaceuticals do. (14) As drug discovery chemist and industry analyst Derek Lowe has observed, "[t]he more important, the more involved with matters of life and death something appears to be, the more uneasy people feel about paying market prices." (15) Paradoxically, people may feel more outrage over high prices for lifesaving therapies--drugs many believe the pharmaceutical industry is insufficiently incentivized to develop (16)--than over incremental improvements or lifestyle drugs.

Because the pharmaceutical industry relies on patents and monopoly prices for lifestyle and lifesaving drugs alike, it has been labeled the poster child for both patents (17) and corporate greed,18 prompting calls for reform in the United States. (19) While some reform proposals only rely on indirect government pricing influence, (20) scholars and policy analysts have increasingly called for direct interventions, such as publicly financing pharmaceutical companies, (21) forcing them to reincorporate as benefit corporations, (22) tying federal grant funding to price controls, (23) or using the government's eminent domain power to overcome patent monopolies. (24)

Although some of these proposals requiring the government to grapple with drug prices head-on might be socially beneficial, this Note does not consider the normative merits of previous proposals. …

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