The Benefits of Publicly Financed Clinical Drug Trials

1

• The Benefits of Publicly Financed Clinical Drug
  Trials

By Dean Baker Co-Director Center for Economic
and Policy Research (CEPR), Washington, D.C.
2
Outline

• The Problem of Monopoly Pricing
• Deadweight Loss
• Third Party Payers
• Assymetric Information
• Publicly Funded Clinical Trials as a Solution
• International Issues

3
Deadweight Loss
200
180
160
140
Protected Price
120
100
Price per Prescription
80
60
Deadweight Loss
40
due to Patent
Protection
20
Competitive Price
0
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Billions
Prescriptions
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Basic Drug Facts

• 3.5 billion prescriptions in the U.S. each year
• Average generic costs 34 Average brand drug
  costs 120 Walmart generics cost 4
• Spending will hit 330 billion in 2012 (CMS),
  perhaps 30 billion w/o patent protection.Protect
  ion in clothes/steel 10-30 percent, protection in
  prescription drugs 1000 percent

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Third Party Payer

• Insurers Insurance companies try to avoid
  paying, patients use legal and political action
• Government almost 40 percent of costs are paid
  by government, more that 30 percent by the
  federal government (Medicare drug benefit)

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Asymmetric Information - Drug companies know more
than doctors or patients

• Conceal evidence that reflects badly on their
  drugs (Vioxx)
• Detailers push drugs (the pernicious use of free
  samples)
• Advertising to consumers

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Solution Bring price down to marginal cost

• Prize Fund Proposals
• Direct Public Funding of Research
• Public Funding of Clinical Trials (Lewis,
  Reichman and So, 2007)

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Basic Plan

• Limited number (8-12) of long-term (8-12 years)
  master contracts
• Should support _at_ 20 billion a year of research
  could fully replace private level of funding
  (much less that potential saving on drugs to
  government)
• Contractors could conduct own research or
  contract out
• Continued, next slide

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• All findings (either by contractors or
  subcontractors) must be fully public and
  available for other researchers
• Patentable findings are put into the public
  domain, subject to copyleft rules
• Continued, next slide

10

• Compensation for publicly paid tests
• Price controls
• Contracts that turn control over patents to
  government (payments based on use)
• Drug companies could do their own tests
• Price controls could apply regardless
• Drug companies will have to compete with generics
• FDA should give greater scrutiny to drugs not
  tested by independent testers

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Advantages of Publicly Funded Clinical Trials

• Lower cost drugs prices would be a non-issue
• Honest research findings
• Eliminate unnecessary duplicative research
  (copycat drugs)
• Better research (huge databases)
• Drive out detailers, direct to consumer
  advertising

12
International Aspects

• Wealthy Countries treaties to share in expense
  (Love and Hubbard)
• Middle-income countries and lower-income
  countries pay less or nothing (scaled to income)

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Conclusion

• Current system of patent protection for drugs
  leads to enormous economic inefficiency and
  inferior health outcomes.
• Publicly funded clinical trials can be an
  effective mechanism for bringing prices closer to
  marginal cost. They can both save money and
  improve treatment.