Sunday, February 11, 2007

A Spoonful of Sugar Helps the Medicine Get Found

Greetings, fellow nerds.

Last post exposed how little incentive there is for drug companies to develop useful new treatments. Only 7% of pharmaceutical revenue goes to finding better drugs. Moreover, this meager 7% isn't normally spent developing any kind of therapy that can't be patented; efforts are skewed towards discovering new and untested substances for the sole reason that they are patentable.

The current system is broken because pharmaceutical companies get rewarded only if the treatments they find lead to widespread purchasing of chemicals they have patented. We need a system whereby private industry gets rewarded every time it discovers a better way to treat pertinent diseases.

Suggestion: Mprize-Like Rewards

The easiest way to reward companies for discovering cures is to do just that: pay drug companies a bounty for each new treatment they show (or discover) that's better than the last one. My favorite way to pay out the bounties would be like they do with the Methuselah Mouse Prize (Mprize for short), similar to the Ansari X prize for commercial spaceflight in that both provide cash rewards for results.

The Mprize encourages scientists to make mice as long-lived as possible, with the hope that some of their techniques could be applied to humans too. Whereas the original X prize offered a single cash reward for the first commercial team to achieve the target (to have one spacecraft fly twice within two weeks to 100 km with a pilot and two passengers or their weight equivalent), the Mprize offers chunks of its money to research teams who provide incremental improvements to the lifespan of mice. Prizes are proportional to how long the winning mouse outlives the old record-holding mouse.

I propose that the financial rewards for research organizations that discover new cures should be awarded incrementally. Like the Mprize, prizes should be proportional to the benefit the new treatment gives above and beyond the current best treatment. For example, say the old treatment for pancreatic cancer has a 25% success rate, the new one has a 40% success rate, and there's $10 billion in the pot for finding a cure to pancreatic cancer. Then, since the company decreased the failure rate (which was 75%) by 15%, they would get (15%/75%) = 20% of the $10 billion, or $2 billion.

Filling the Prize Pots

In a perfect world, we'd solve the prize-funding problem with alphabet soup. The WTO would request a percentage of each nation's GDP to go to the WHO, who would allocate funds as needed. Perhaps nations would get discretion over where 50% of their funds go, so that individual rulers could appease their special interest groups and gain some political capital. (As long as no special interest groups become overwhelmingly powerful in all nations, the WHO could probably end up with the same money distribution they would choose voluntarily by spreading the remaining 50% among neglected but important prizes.)

In an imperfect or intermediate world, only some nations (or a subset of HMOs within a nation) would participate in the bounty system; the others would be required to license any intellectual property discovered by the bounty system. Unfortunately, one of the strengths of the bounty system is that it provides an incentive to discover unpatentable treatments. (I wonder for example how many diseases could be helped by proper exercise. Under the current system that kind of study is hard to fund, so we'll never know.) Groups not participating in the bounty system would thus get these benefits for free (or perhaps at the expense of losing face in the international community for being freeloaders). Researchers outside of the bounty system could choose to claim the cash prize and give up their intellectual property, or they could license their work as they do now.

Still, without the burden of having to market new drugs (recall that only 14% of drug company revenue goes to R & D), it's possible that a bounty-based system could beat drug companies at their own game, producing more patentable treatments per chunk of cash, especially if M.D.s become sick of being hounded by incessant glossy ad campaigns for new drugs of dubious quality. (Hey, I can always dream, can't I?)

Sanity, Meet Drug Quality Regulations

I can't resist adding one more suggestion which would lower the cost of drugs. If you're not squeamish, check out how many rodent hairs and insect parts the FDA allows into food. Here's my question: if it's safe to eat reasonable amounts of contaminants in food (including food we give to sick people), why isn't it OK to allow even minuscule levels of contamination in the medicines we eat? Eating traces of rat hair is either bad (in which case we shouldn't allow it in food), or not a big deal (in which case we should relax the US FDA requirements which keep generic drug manufacturing expensive). Apart from dose and shelf life quality control, generic medicines you eat should have no more regulations than food.


If we want drug companies to work for us, we have to give them incentives to work for us. Right now their incentives are barely aligned at all with discovering new and better medical treatments. By replacing the patent system with a bounty system, we can harness the capitalist desires of pharmaceutical corporations for the benefit of humanity. It will be hard to set up a system which collects money for the rewards, but even if we assume this system is only about 50% efficient and collects 50% of the revenue of today's system, this system would still more than triple the amount of useful treatment research and development going on today. 7% efficiency isn't a hard benchmark to beat.

Let's harness the power of the free market by giving incentives for finding the best (not the most profitable) cures possible.

P.S. There are a few details in the way we'd need to implement bounties to keep people from abusing the system. I'll go into these in my next post. After that, please feel free to point out any remaining flaws in my bounty ideas. Thanks!

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