The Benefits of Publicly Financed Clinical Drug Trials By Dean Baker Co-Director Center for Economic and Policy Research (CEPR), Washington, D.C. Center for Economic and Policy Research (CEPR), Washington, D.C.

Outline 1) The Problem of Monopoly Pricing a) Deadweight Loss b) Third Party Payers c) Assymetric Information 2) Publicly Funded Clinical Trials as a Solution 3) International Issues

Deadweight Loss $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $ Billions Prescriptions Price per Prescription Deadweight Loss due to Patent Protection Protected Price Competitive Price

Basic Drug Facts 1) 3.5 billion prescriptions in the U.S. each year 2) Average generic costs $34; Average brand drug costs $120 – Walmart generics cost $4 3) Spending will hit $330 billion in 2012 (CMS), perhaps $30 billion w/o patent protection. Protection in clothes/steel percent, protection in prescription drugs – 1000 percent

Third Party Payer 1) Insurers – Insurance companies try to avoid paying, patients use legal and political action 2) Government – almost 40 percent of costs are paid by government, more that 30 percent by the federal government (Medicare drug benefit)

Asymmetric Information - Drug companies know more than doctors or patients 1) Conceal evidence that reflects badly on their drugs (Vioxx) 2) Detailers push drugs (the pernicious use of free samples) 3) Advertising to consumers

Solution – Bring price down to marginal cost 1) Prize Fund Proposals 2) Direct Public Funding of Research 3) Public Funding of Clinical Trials (Lewis, Reichman and So, 2007)

Basic Plan 1) Limited number (8-12) of long-term (8-12 years) master contracts 2) Should $20 billion a year of research – could fully replace private level of funding (much less that potential saving on drugs to government) 3) Contractors could conduct own research or contract out Continued, next slide

4) All findings (either by contractors or subcontractors) must be fully public and available for other researchers 5) Patentable findings are put into the public domain, subject to “copyleft” rules Continued, next slide

6)Compensation for publicly paid tests a) Price controls b) Contracts that turn control over patents to government (payments based on use) 7) Drug companies could do their own tests a) Price controls could apply regardless b) Drug companies will have to compete with generics c) FDA should give greater scrutiny to drugs not tested by independent testers

Advantages of Publicly Funded Clinical Trials 1) Lower cost drugs – prices would be a non- issue 2) Honest research findings 3) Eliminate unnecessary duplicative research (copycat drugs) 4) Better research (huge databases) 5) Drive out detailers, direct to consumer advertising

International Aspects 1) Wealthy Countries – treaties to share in expense (Love and Hubbard) 2) Middle-income countries and lower- income countries pay less or nothing (scaled to income)

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.