finding cures for tropical diseases: choosing the right incentives stephen m. maurer goldman school...
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Finding Finding CuresCures for Tropical Diseases: for Tropical Diseases:Choosing the Right Incentives Choosing the Right Incentives
Stephen M. MaurerGoldman School of Public Policy, UC BerkeleyMay 23, 2007
European School on New Institutional Economics
Introduction
500 Million People
The Patent System Hasn’t WorkedMandatory Radicalism
A Once in a Lifetime ChanceBill Gates’ Antitrust TroublesMultiple Schemes, Complex PoliticsHow to Choose?
Introduction
Putting Innovation Theory to WorkA Clear Objective: Cost ContainmentRational – And Unsentimental – Comparison
Overview
Reforming PatentsPrice Discrimination, Strategic Investing, Harmonization & Boosted Demand.
Patent-Like SolutionsGuaranteed Purchase Commitments
Virtual Pharma CompaniesPrivate-Public PartnershipsStrategy
Conclusions
Reforming PatentsPrice DiscriminationHarmonizationStrategic InvestingBoosted Demand
Reforming Patents
Price DiscriminationA Good Solution for Rich Nation Drugs
Parallel Imports & Rich Nation Health MinistriesA Political Problem
Does Not Generate R&D Funds
J. Lanjouw, “Outline of Foreign Filing License Approach” (2004), available at http://www.cgdev.org/docs/FFLOutline.pdf.
Reforming Patents
HarmonizationMarkets are Inadequate!
Western sponsors are essential
Partial ExceptionsTB (80%)Malaria (45%)AIDS (25%)Dengue, Leishomaniasis (~ 0%)
Making Up The Difference?
Global Alliance, Economics of TB Drug Development (2001), available at http://66.216.124.114/pdf/Economics%20Report%20Full%20(final).pdf
Reforming Patents
Strategic InvestingInformation Asymmetry
& Crowding Out
Private-Public Partnerships & Access Pricing
Boosted DemandThe Sunk Costs ProblemDiscounting the Payoff
A Traditional Fix…
Reforming Patents
Guaranteed Purchase Schemes“AdvancedMarkets”
Is It Feasible?
Is It Desirable?Setting the PrizeEstimating R&D Costs
Patent-Like Solutions
AdvancedMarkets Working Group, Making Markets for Vaccines: A Practical Plan to Spark Innovation for Global Health (2002).
Estimating R&D Costs (Pt. 1)The Accounting Answer
Drug Company DataMarket ArgumentsA 20 – 30% Uncertainty?
Patent-Like Solutions
Joseph DiMasi, Ronald Hansen & Henry Grabowski, “The Price of Innovation: New Estimates of Drug Development Costs,” Journal of Health Economics 22:151 (2003).
E. Berndt et al., “Advanced Markets for a Malaria Vaccine: Estimating Costs and Effectiveness” (2005).
Estimating R&D Costs (Pt. 2)Is the Accounting Answer Right?
Pro Forma EstimatesPrizes & Internal Financing
Patent-Like Solutions
Additional CostsTechnology Shocks
Who Gets The Savings?
Agency Problems (Sponsors)Risk PremiumEconomies of Scale
Patent-Like Solutions
Other IssuesWhy an Independent Adjudication Committee?
Two-stage games & bribesMe-Too Drugs & Cumulative InnovationNot The Patent System!
Can Virtual Pharma Do Better?
Patent-Like Solutions
Virtual Pharma
Beyond Monolithic Drug CompaniesVirtual PharmaPublic-Private Partnerships (“PPPs”)
PPP StrategyPay-as-You-Go vs. End-to-EndA Preliminary DesignOpen Source & Hybrids
PPP Strategy (I)Opening The Black Box?
A Bigger ToolboxBut: How Are Incentives Affected?
Yooki Park, Essays in the Economics of Innovation Incentives (2006)
Virtual Pharma
Case 1: No Learning:PaYG:
y11 = c1/p1
y2 = c2/p2
Sponsor may pay y1 and get nothing.
E2E: y2 = [1/p2] x [c1/p1] + [c2/p2]
Sponsor must pay larger y2 than in PaYG.Payouts are the same in expectation.May not support all desired races.
Virtual Pharma
Case 2: Firms LearnE2E Costs LessThe Sunk Costs Argument
Case 3: Firms & Sponsors Both LearnPaYG Costs LessSponsors Adjust y2
Mixed Cases
Virtual Pharma
PPP Strategy (II)A Preliminary Design
Characterizing the PipelineSocial ChallengesToolboxDesign
Stephen M. Maurer, “Choosing the Right Incentive Strategy for Research and Development in Neglected Diseases,” WHO Bulletin 84:376 (2006).
Virtual Pharma
Characterizing The Drug Discovery Pipeline:
Basic ResearchFinding TargetsValidating TargetsFinding Lead CompoundsOptimizing Lead CompoundsProcess DevelopmentPre-Clinical TestingPhase I TestsPhase II TestsPhase III TestsApprovalPhase IV Tests
Stephen M. Maurer, “The Right Tools” (2005) (report for World Health Organization), available at http://gspp.berkeley.edu/iths/MAURER_DrugRsch.pdf.
Virtual Pharma
Science TasksBasic ResearchFinding TargetsValidating TargetsFinding Lead CompoundsOptimizing Lead CompoundsProcess DevelopmentPre-Clinical TestingPhase I TestsPhase II TestsPhase III TestsApprovalPhase IV Tests
How Disease Works
Points of Intervention
Finding Drugs
Learning to Make Drugs
Testing
Virtual Pharma
Social Challenges
Basic ResearchFinding TargetsValidating TargetsFinding Lead CompoundsOptimizing Lead CompoundsProcess DevelopmentPre-Clinical TestingPhase I TestsPhase II TestsPhase III TestsApprovalPhase IV Tests
Agency Problems(Researchers)
Cost
Virtual Pharma
Eliciting Information
Basic ResearchFinding TargetsOptimizing TargetsFinding Lead CompoundsOptimizing Lead CompoundsProcess DevelopmentPre-Clinical TestingPhase I TestsPhase II TestsPhase III TestsApprovalManufacturingPhase IV Tests
Social Challenges: Eliciting Information
Virtual Pharma
Toolbox: Eliciting InformationPrizesGrantsContract ResearchOpen Source
Virtual Pharma
Social Challenges:Agency Problems (Researchers)
Basic ResearchFinding TargetsOptimizing TargetsFinding Lead CompoundsOptimizing Lead CompoundsProcess DevelopmentPre-Clinical TestingPhase I TestsPhase II TestsPhase III TestsApprovalManufacturingPhase IV Tests
Virtual Pharma
Toolbox: Agency Problems (Researchers)
PrizesGrantsContract ResearchOpen Source
Virtual Pharma
Social Challenges: Getting the Best Price
Basic ResearchFinding TargetsOptimizing TargetsFinding Lead CompoundsOptimizing Lead CompoundsProcess DevelopmentPre-Clinical TestingPhase I TestsPhase II TestsPhase III TestsApprovalManufacturingPhase IV Tests
Virtual Pharma
Toolbox: Getting the Best Price
PrizesGrantsContract ResearchOpen Source
A Happy Coincidence
Virtual Pharma
Getting the Best Price, ctd…Enforcing The Best Price
Buying Power & Repeat GamesEconomies of Scale
Can Non-Profits Pick Winners?Is Pharma Efficient?Foundations as Shareholders?An Empirical Question
Virtual Pharma
Room for Open Source?
Software ~ DNA?Advantages
VolunteersEfficient Pricing TransparencyNew Science?
Tropical Disease Initiative
Stephen M. Maurer, Arti Kaur Rai & Andrej Sali, Finding Cures for Tropical Diseases: Is Open Source An Answer? 1 Public Library of Science: Medicine 56 (2004)
Do Hybrids Make Sense?
Economies of Scale
A Strategic Investing StoryPicking Winners vs. Science
Politics
Conclusion
Conclusion
Price DiscriminationRich Nation DrugsA Political Problem
Strategic InvestingTuberculosis? Malaria? AIDS?Crowding out & access pricing
AdvancedMarkets vs.Virtual PharmaDengue, Leishomaniasis , etc. Uncertain R&D Costs vs. Cold-Blooded FoundationsBill Gates, Businessman
Finding Finding CuresCures for Tropical Diseases: for Tropical Diseases:Choosing the Right Incentives Choosing the Right Incentives
Stephen M. MaurerGoldman School of Public Policy, UC BerkeleyMay 23, 2007
European School on New Institutional Economics