Monday, February 23, 2004

Pharmaceutical Development
An Immodest Proposal for Bigger Government

James Surowiecki
Last week's New Yorker Magazine did not escape the attention of the blogosphere.  The attention all went to Jane Meyar's article of Dick Cheney and Halliburton.  I even chimed in on the topic, at the risk of being just another faint voice crying out in the distance.  I would like to point out that the same issue of New Yorker that carried the Meyar article also had an article by James Surowiecki: The Pipeline Problem.  The article addresses one of the more pressing domestic issues in the USA during this early part of the 21st century; that of new drug development. Most of the attention is focused on the cost of new medications, the implications for Medicaid and Medicare funding, and the impact on health insurance premiums.  Looking beyond the economic issues, one realizes that patient care is what the industry provides.  That is what we pay them to help us with.  The first paragraph of Surowiecki's article is intended to develop the setting for his main argument, that we are in the midst of a major restructuring of the pharmaceutical industry:

Merck is one of history's most innovative corporations. It devotes three billion dollars a year and ten thousand people to the research and development of new drugs. So here's a question: How many drugs for diabetes do you think all these men and women, this army of scientists, managed to come up with in the past four years? None. How many anti-cancer drugs? Zero. How many drugs that fight infectious diseases? Zero. Since 2000, in fact, Merck has introduced just three new drugs. Drug development is hard, but, by any measure, eking out less than one product a year is no way to make a living in the major leagues.

The case Surowiecki develops is that big companies have difficulty with innovation.  Thus, the main function of the big companies is to watch the little guys until they come up with something promising, then buy them out.  The little guys seem to be good at innovation, but they have neither the funding nor the capabilities to deal with the FDA that are needed to bring a product to market.  Surowiecki likens this to the movie industry picking the plums from the small independent studios:

So maybe it's time to move on. Peering into the future, one can see the faint outlines of a pharmaceutical industry that looks a bit like the movie business, with big pharmaceutical “studios” marketing, distributing, and perhaps even underwriting the costs of smaller drug “producers.” The only difference is that the drug studios might actually make money.

It turns out, though, that the issue is more complicated.  We all know that the major studios are notorious for passing over many good films, looking for the few that have the potential to be box office supernovae.  We all decry the loss of films with artistic merit.  But we don't get too upset; after all, there are venues for independent producers.  Technological innovations, and the profusion of distribution media, allow for some of the little-known artistic films to get out to an audience that is willing to do a little work to find them.  Not so the drug industry. 

If a small lab comes up with a promising drug, but the bean counters at the big companies do not think it has potential, it is likely to sit on a shelf and be forgotten.  After all, the small company cannot set up a lab in their basement, produce the stuff, and distribute on the Internet.  They can't package it into cassettes and ship them off to the rental stores.  A small film producer can get some digital video equipment and do exactly that, but a pharmaceutical company that tried to do that would run afoul of the FDA, the DEA, the DOJ, etc., and would be shut down in a matter of days by a small army of guys with alphabet soup on their Kevlar vests. 

This is not a diatribe against the FDA.  The FDA gets a lot of flak, on two fronts.  If there is a delay is getting a drug to market, people criticize the FDA for being too restrictive.  If a drug gets to market and there are unanticipated risks, the FDA get criticized for being too lax.  There probably is no way out of this box; there will be problems either way, if they become either more or less restrictive.  The FDA has responded in part by establishing the Office of Orphan Products Development.  This is an effort to help assure that some drugs that are useful, but which might not be profitable enough for the major players to invest in, will have a chance to get to market and actually help people.  They have had some significant successes. 

Proponents of smaller government might argue that the Federal Government has no business getting into the drug industry.  This is a big debate, beyond the scope of this article.  Leaving the debate aside for a moment, I would like to make a pitch for a limited expansion of government.  The OOPD has a limited mandate.  They provide grants  specifically for drugs or medical devices that have an intrinsically small market.  Some diseases are so rare that there never will be very many customers for the treatments specific to those diseases.  However, the orphan drug development process leaves out the drugs that could have a large market, but which are not developed by the big companies because they might not be profitable.  There are many reasons why a drug might not be profitable, and a small market is only one such reason. 

What are some of the other reasons?  Some drugs take so long to develop, that there is only a limited patent life remaining by the time they could be approved for distribution.  If such a drug is in the pipeline, the company might kill it because the limited patent life might not permit a good return on their investment.  Another problem, especially with some of the new biotech products, is that there are so many people involved, each with a patent on some part of the process, that by the time all of the players get their piece of the pie, there isn't much of the pie left for the company to make enough profit.  As a result, there are perfectly good drugs that only get so far in development, before the spreadsheet starts to show a negative number, and the development  funding is pulled. 

It is hard to fault the company for this behavior.  After all, they routinely make decisions involving hundreds of millions of dollars.  They have an obligation to their shareholders.  But I can't help but think about all the human tragedy that could be averted if there were some way to get these products on the shelves.  It is possible that an expansion of the mandate for the OOPD could result in a few of these products being rescued.  Yes, it would mean expanding the FDA, adding more federal employees, and all the burdens associated with bigger government.  But we can't expect private companies to do this.  We could set up a review process to extend patent life on a case-by-case basis.  This would have to be done carefully, because there would be a potential for abuse of the system.  Companies are already drawing well-deserved criticism for legal wrangling to extend patents. 

In my view, the opportunity to help more patients is in itself enough reason to justify an expansion of the OOPD.  There is another argument to be made, though, an argument that might catch the attention of the smaller-government proponents.  In some cases, these new drugs could lower the cost of Medicaid and Medicare.  It would be possible to focus the attention of the OOPD on those medications that could do exactly that.  Thus, it is conceivable that the whole thing could be done at no net cost to the federal government. 
(Article 051)