Prizes, not prices, to stimulate antibiotic R&D

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With the worldwide growth of resistance, new antibiotics are increasingly needed. But R&D can be expensive and time-consuming, says James Love.

Many of the challenges associated with the development of new antibiotics and vaccines are familiar, and common to other medicines. Research and development (R&D) is expensive, particularly for clinical trials involving people, and product development can be a lengthy process — two unattractive features for most investors, who tend to be risk-averse.

Investors might also be deterred by patent thickets. Many of the scientific benefits of R&D, including those generated by failures, are difficult or impossible to appropriate under patent laws.

Other market failures are associated with antibiotics and vaccines. Newer antibiotics should be used only when older drugs don’t work, which runs counter to exploiting the temporary patent monopoly. It may take a particularly long time to evaluate the safety and efficacy of a vaccine, and the social value may be higher than the monetary value, because of an opportunity to eradicate an infectious disease or because vaccinations lower community infection rates.

‘Push’ and ‘pull’ mechanisms

Responses by governments to underinvestment in new antibiotics and vaccines vary, but generally focus on a combination of research grants and subsidies (‘push’) and additional incentives for investments in successful products (‘pull’).

Public sector and donor investments in antibiotics and vaccines are enormously important, and are typically in the form of push mechanisms, such as grants to non-profit drug development partnerships. Nevertheless, many experts insist that pull factors are still important in ensuring that development efforts are focused on the projects with the highest probability of success.

Some pharmaceutical industry lobbyists and academic writers have suggested that governments could give longer patent protection to antibiotics to allow the patent owner more time to recover R&D costs. Others want governments to guarantee high prices for vaccines, or provide for various systems of cross-subsidies such as transferable patent extensions that can used to extend monopolies of blockbuster products like the cholesterol drug atorvastatin.

Although high drug prices have traditionally been the incentive for R&D investment, there is a growing awareness of the associated problems. High prices mean many people cannot afford them. In poor countries, there is a dearth of patented products on the World Health Organization model essential drugs list. Even in industrialised countries, high prices also lead to various strategies to limit access, such as limited insurance coverage for the newest medicines.

Not all medicines are for immediate use: part of any government’s health strategy is stockpiling drugs for health emergencies such as a flu pandemic. But the high monopoly prices discourage stockpiling of many important medicines, particularly in poor countries.

The use of high prices as an incentive for investment is also associated with spending on costly — and sometimes misleading, irrational or harmful — marketing practices, including cases where the owner of a drug exploits the monopoly by encouraging the use of medicines even where they are not appropriate. For example, the drug Vioxx was marketed widely to patients for whom the risks were too high relative to the benefits, because the manufacturer wanted to expand sales even when safer drugs would have been more appropriate. 

This is a particularly important issue for the development of antibiotics, where there is a strong public health rationale for restricting access to the newer products in order to avoid drug resistance.

Finally, using product prices as an incentive leads to too much investment in new medicines that offer only minor incremental benefits over existing medicines, while products that open up new paths for treatment are relatively under-rewarded. 

Ethical dilemmas

For an incentive system that efficiently rewards products that improve healthcare outcomes, and does not lead to rationing and ethical dilemmas over access, it is better to use prizes rather than prices.

In theory, prizes can dominate prices in every important policy area when implemented as part of a scheme that separates the market for innovation from the market for products.

The World Health Assembly recognised the importance of this concept in May 2007 when it urged the WHO director-general to encourage the development of new incentive mechanisms that address "the linkage of the cost of research and development and the price of medicines."

For antibiotics, a reward system of cash prizes could value new products using economic models similar to those used to value stock options, inventories and other financial instruments. A new antibiotic would be valued not only for its use during the patent term, but as part of an ongoing portfolio of products needed for new diseases, conditions or resistance problems that are expected to emerge over time.

Prizes can be paid even in cases where current consumption is zero, or close to zero, as long as the new product enhances the security and sustainability of the treatment programme. These pricing models need not be highly complex. A large but simple cash bonus for the registration with the US Food and Drug Administration (FDA) of a new antibiotic that has a useful drug resistance profile, coupled with competitive generic production, would create better economic incentives for rational management of an antibiotic than a 20-year marketing monopoly that is valuable only if converted into product sales at high prices. It is possible to do better than this, of course, but even such a simple starting point would offer improvements over the status quo.

Vaccine development could definitely benefit from a shift from monopolies to prizes as the reward for innovation. Today, vaccine developers fight for strong patent protection in order to ensure large returns on investments. But the patent system is also a potential problem in vaccine development — as a barrier to the use of technologies.

The development of the HPV (human papillomavirus) vaccine has been slowed and is less effective than it could have been because its development was mired by a complicated patent landscape. If prizes, rather than the strength of the marketing monopoly, determined returns for innovation then vaccine developers would prefer reforms in the patent system to make it easier to use inventions in new vaccines. Patients would benefit from competition and the lower prices for the vaccines themselves, and society would benefit from higher utilisation of vaccines.

Finally, some smaller firms have expressed interest in the development of a system of prizes that rewards early stages of drug development. 

Specifically, they propose a system of prizes to reward success in meeting benchmarks in product development, including the relatively early phase I or II clinical trials. Such a system could be important in areas where capital markets do not work well and there are important benefits from early product development efforts that have little likelihood of commercial success. Tests of products that eventually fail to obtain FDA approval often contain useful information, and may be important stepping stones in terms of understanding the scientific and engineering challenges for the next generation products that work better.

The challenge is to find ways either to value such intermediate successes or to identify intermediaries that have the resources and legitimacy to make such valuations. This is an area of much policy research today.

James Love is director of Knowledge Ecology International.

This article is part of a Spotlight on Fighting antibiotic resistance.