March 2016, Dean Baker

The current system of financing pharmaceutical research through patent monopolies or other forms of market exclusivity is fundamentally flawed. It creates an altogether unnecessary problem by making drugs that are cheap to produce extremely expensive to the patients who need them. The fact that most of the cost is borne by third party payers undermines the traditional argument for market prices as conveying information about households’ desires. This system of pricing also leads to the sort of waste and corruption that would be predicted from a system in which government granted monopolies lead to items being sold at prices that are typically several thousand percent above their cost of production.

This proposal outlines a plan for a pilot project of public financed clinical trials. Under this proposal, government(s) would set aside a limited amount of funding to finance clinical trials and bring drugs through national approval processes. This funding would be awarded under long-term contracts (810) years on a competitive basis. The winners of the contracts would test promising compounds of their choosing in the areas where they have designated an interest. As a condition of getting the funding, all the results of the tests will be fully available to the public. In addition, whatever drugs are approved would have no exclusivity conditions, so they could be sold as generics.

In addition to making potentially important new drugs available to the public, this pilot will set a model for transparency in research. The practice of disclosing all test results in a timely manner should pressure other pharmaceutical companies to adopt the same practice. In addition, since the contracts and the number of trials will all be public information, this project will also provide substantial insights into the cost of clinical trials and drug development.

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