The Public Shouldn’t Pay for Drugs Twice

Yves here. Most US readers are generally familiar with the fact that the US pays for a ton of drug research….yet lets pharma companies license it on extremely favorable terms, to the detriment of both American taxpayers as seed round VC funders and as patients buying these drugs.

Among other things, this post describes the licensing scheme that allows these perverse outcomes to happen.

Of course, the root cause is promoting profit-driven medicine.

By James Stout, Ph.D., is a journalist and historian living with diabetes. He has more than a decade of public health volunteering experience. Originally published at Undark

When Covid-19 vaccines arrived in the winter of 2020, the much-heralded shots put a spotlight on the big pharmaceutical companies that had brought them to market — especially Pfizer and Moderna. It could be easy to miss one important detail: Those vaccines, like many of those companies’ flagship products, would not have been possible without public funding.

By one estimate, the National Institutes of Health spent $17 billion on vaccine technologies fundamental to the Covid-19 vaccine. More recently, the United States’ Operation Warp Speed poured billions into development. And according to a 2021 study, 95.5 percent of the funding behind AstraZeneca’s vaccine came from the British government.

Despite this massive influx of public cash, the resulting Covid-19 vaccines raked in huge profits for the corporations that brought them to market. Moderna’s vaccine, for example, created at least five billionaires — an illustration of the current drug development system in which research is publicly funded, but corporations profit.

Pharmaceutical companies often reap the rewards of public spending. In fact, in the U.S, every new drug approved by the FDA between 2010 and 2019 has relied on grants from the NIH. Meanwhile, the companies sometimes turn around and charge the public exorbitant prices for the same drugs their tax dollars helped create.

Part of the problem is an outdated licensing system that allows private companies to buy exclusive rights to use publicly funded research, with few strings attached. Many of these issues stem from the way intellectual property, or IP, is licensed in the U.S. and some other wealthy countries. Making changes to the way we fund research and license drugs could help treat millions of people, particularly in developing nations.

Typically, when a scientist conducts research at an institution, the IP — meaning any novel innovations they produce, such as a new drug — belongs to the institution, rather than the scientist who did the work or the funder who paid for it. This arrangement is in large part thanks to the 1980 Bayh-Dole Act, which allows universities to patent inventions even when taxpayers funded the research. After the research is done, the institution can sell the IP to a corporation through a technology transfer agreement, and the company can bring it to market. After that point, as owners of the IP, companies have the freedom to set prices and make other key sales decisions.

This model has been championed as a way to encourage innovation, but those private companies are obliged to deliver the maximum return to shareholders rather than to ensure the greatest possible reduction in human suffering.

A better model is possible — one which allows for drug innovation while keeping drugs accessible and affordable for everyone.

For example, the Universities Allied for Essential Medicines, or UAEM, has proposed a global access licensing framework, in which patents are only employed “when truly necessary” and any barriers to formulating generic alternatives — which tend to be much less expensive — be removed.

This change starts with research institutions. Universities should stipulate in their technology transfer agreements that they would not use patents to prevent generic competition in places where the list price of the drug was unattainable based on average income, and they would only sign contracts to sell IP where the buyer, such as a pharmaceutical company, agreed to do the same. Research institutions would also not use their IP rights to challenge further research from other institutions that might result in new drugs or compounds more suited to use in low-income countries (for example, ones that could be stored outside of a refrigerator).

The potential harms of the current licensing model — and how they ripple out beyond countries like the U.S. and Britain — are evident in the drug enzalutamide, which is used to treat prostate cancer. It was discovered and patented at the University of California, Los Angeles in 2006, using funding from NIH and the Department of Defense, and has since been classified as an essential medicine by the World Health Organization. But UCLA licensed the drug out. It is now produced by Pfizer and sold under the brand name Xtandi.

Xtandi is highly effective, but it costs almost $13,000 per month, and even patients in the U.S. struggle to afford it. Meanwhile, in order to protect their patent, UCLA challenged a decision that made generic versions of the drug available in India, taking their case as far as a high court in New Delhi. UCLA won, and enzalutamide is now only available under the brand name of Xtandi in India, where it costs nearly 30 times the average per capita income, making it inaccessible for many.

A global access model would have allowed for generic competition in India and other low-income markets. With global access provisions in contracts as a standard, UCLA could have avoided negative publicity and a lengthy court case, and — more importantly — saved lives. Because institutions cannot necessarily be trusted to do what is best for the common good, funders, such as NIH, should make it a global access licensing model a condition of grant awards.

The need for accountability is evident in the case of Oxford University’s Covid-19 vaccine. Researchers at that institution (who are likely well aware of the pitfalls of the current model), proposed that licensing for their discoveries be available as “non-exclusive” and “royalty free.” But external pressure led them to abandon this promise. The IP was sold to AstraZeneca, which committed to selling the vaccine at-cost for the duration of the pandemic. In late 2021, it claimed the pandemic had moved to an “endemic phase” and moved to a for-profit model, yielding $1 billion in profit that same quarter.

By making sure universities commit to enforcing their patents with the goal of reducing human suffering, and allow for generic competition in markets where drugs are not affordable to most people, we can save hundreds of thousands of lives with tiny profit sacrifices for some of the wealthiest corporations on the planet.

This change requires government action, and a change in how universities see intellectual property. It will undoubtedly face pushback from pharmaceutical interests. But publicly funded research should benefit people first, not corporations.

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  1. Lexx

    … and then there are the side effects of those drugs, that necessitate taking more drugs, and more expensive medical testing to look at the consequences of those drugs collectively to organs like the heart, kidneys, and liver over time, especially in an aging patient. That said…

    I hardly ever walk into a drugstore and stand in line to refill a prescription, but last week I had one that was about to expire so I went to max out the refill. When I turned around to leave and looked at the line behind me, everyone in it (maybe 8) looked like they were under 30. It’s one thing to see it reported (probably here at NC) about the chronic health problems the young are dealing with; it’s another to see them standing in line behind you to acquire prescription drugs to deal with some of those problems.

    1. The Historian

      I tend to think you are right about more chronic diseases in our young although I haven’t found any serious analyses of this. My grandchildren don’t seem to be as healthy as my children were – and it seems that they are taking a lot more medications than their parents ever did as children. But I wonder if some of this has to do with the fact that we are a ‘pill’ society, i.e., there is a pill for everything now – and those pills don’t come without some side effects – which, of course, need more pills to fix.

    2. Yves Smith Post author

      1. A lot of young people are on psychoactive drugs. Lambert listens to the Trillbillies and the hosts have sometimes discussed the meds they’ve been on the way regular wine drinkers discuss wine.

      2. There is a ton of overmedicating among old people. My mother’s MD actually tried discussing with her taking her off some, using money as an excuse. She recited back the co pay of every one to the penny and resisted (she hated being pushed around by that doctor). After reviewing them, I took her off every one except her inhaler. She continued to have terrific blood work, doctors would go on about how great her blood tests were for someone her age. Her blood pressure was all over the map but that was true on and off all those meds.

      1. Irrational

        Definite yes to over-medicating when I see what my in-laws have in pill-boxes. Also a general US tendency to prescribe another drug for the side effect of the previous drug – I believe one of the COVID brain trust also observed this.

      2. Lexx

        Ditto for my parents. They were taking so many drugs and kinds of drugs, I worried for their dog. I’d be standing in the kitchen and look down to see a pill or two just under the cabinets. Either they hadn’t noticed or couldn’t be bothered to pick them up. They were both hard of hearing. I used after dinner kitchen clean-up as an excuse to grab a broom and sweep them up. Fortunately the dog wasn’t all that interested.

        I’ve read the podcast is about busting stereotypes of Kentuckians… where the hosts are pretentious about their drugs? Well, they’re ‘on mission’, I totally didn’t see that coming.

  2. Colonel Smithers

    Thank you, Yves.

    “Researchers at that institution (who are likely well aware of the pitfalls of the current model), proposed that licensing for their discoveries be available as “non-exclusive” and “royalty free.” But external pressure led them to abandon this promise.”

    External influence was certainly brought to bear by Gates and the likes of Kate Bingham (SV Health Investors, Vertex, International Biotechnology Trust, Harvard and Cambridge) and Dido Harding (McKinsey), but it may not have needed pressure. Why? The leading members of the Oxford research team and medical professionals in Whitehall heading efforts to combat the pandemic, with the exception of Jonathan Van Tam, have big pharma connections and investments. None ever declared their conflicts of interest. The members of the NC community who work in finance (and other sectors such as the government) may be puzzled by that as we have to register such interests.

  3. The Historian

    Sadly, you can’t read or you’d know that Yves didn’t write the article – James Stout, PhD, did. And it is a good article!

    And, btw, this article isn’t about MMT – it’s about how Big Pharma screws you by making you pay for the development of the drugs twice. Would you feel better if the Feds just paid up whatever Big Pharma wants to get from them?

  4. CanCyn

    It is not only drug research but academic research in general that the public pays for twice. A lot of university and college research is published in privately owned journals for which universities and colleges pay whopping subscription fees to access. There are movements to ensure that research is open and available to all, some Canadian universities ensure that regardless of where it is published, their faculty research will be made available in institutional repositories. But all in all, the profiteering, especially in pharmaceutical research is truly deplorable.

  5. The Rev Kev

    Sometimes some of the solutions make themselves apparent in a post – such as repealing the 1980 Bayh-Dole Act. The best solution – not that it would ever be done – is to set up a government body to manufacture drugs in the US itself. Yeah, it would have to be built up from near scratch and would take years of investment but it could manufacture some of the drugs that they research and so soon make back the money invested – probably sooner than later. It could be also used to keep Big Pharma corporations honest. An example would be to manufacture and sell insulin for say a dollar a dose and let Big Pharma compete. They could also manufacture drugs that Big Pharma is not particularly interested in because the profit margin is not enough for them because it actually cures people or something. Yeah, I know. Dream on Macduff.

    1. Samuel Conner

      > The best solution – not that it would ever be done – is to set up a government body to manufacture drugs in the US itself.

      This is the best solution, but the uniparty wouldn’t like it; too close to “socialism”. I have wondered whether it would be feasible for public-spirited private actors to set up relatively small non-profit Pharma corporations to manufacture generics. If these could become successful, they would be obvious licensees for new agents developed through publicly funded research.

      My cynical interpretation is that the wealthy foundations aren’t going to fund things like this. Perhaps they could be crowd-funded. One can dream; the hope that the future might be less disagreeable than the past helps me to get out of bed in the morning.

      1. Synoia

        Our beloved leaders also benefit from this gravy train, in the form of campaign contributions.

        The current US structure of elected politicians looks to me as a massive extortion scheme, or bribes for “representation, withe bribe-es legislating the rules for their oen befit.

        Power corrupts, absolute power corrupts absolutely.

  6. KLG

    I was early in my long apprenticeship in academic biomedical research when Bayh-Dole was implemented, during the last year of Jimmy Carter’s presidency. People tend to forget he was our first neoliberal President. I remember telling other lab members that all this meant was we would now pay for everything twice, the first time through NIH and NSF and the second time through the nose. Later I was involved in a biotech “start-up” whose existence was made possible by Bayh-Dole. It failed spectacularly due to greed and stupidity or stupidity and greed on the part of the founders, who were astonished they failed to “cash out with a unicorn” (h/t PK). One of them is still chasing the rainbow, with more than 450 entries in PubMed. AFAIK he hasn’t cured any diseases yet, but he has relentlessly climbed that greasy pole into a position at one of the satellites of a very famous medical school in New England. So he’s got that going for him. Which is nice.

  7. Lazlo

    Chomsky’s “pentagon system”.
    Socialize the costs, privatize the profits.
    Thus far I’ve failed to square this with our complaint that the Chinese government (unfairly) subsidizes Chinese business.

  8. Keith Newman

    The system of patent protection for prescription drugs is one of the more outrageous aspects of healthcare. It has many nasty results. The goal of the industry is to develop chemicals that will enrich the owners of the patent rather than cure or prevent disease. This leads to overuse due to misleading promotion to doctors but under-use by those who can’t afford to pay, not to mention drugs that are useless or harmful. In addition, pharmaceuticals are mainly developed for wealthy countries where people can pay but not for diseases found in poor countries. When countries try to counter Big Pharma’s actions the industry engages in extortion saying if it can’t make an acceptable profit it won’t sell its drugs.
    Much has been written on this topic. I recommend:
    – Peter Gotzsche: “Deadly Medicines and Organised Crime: How Big Pharma Has Corrupted Healthcare”. From the introduction: “PRESCRIPTION DRUGS ARE THE THIRD LEADING CAUSE OF DEATH AFTER HEART DISEASE AND CANCER. In his latest ground-breaking book, Peter C Gotzsche exposes the pharmaceutical industries and their charade of fraudulent behaviour, both in research and marketing where the morally repugnant disregard for human lives is the norm…”
    – Mariana Mazzucato: “The people’s prescription: Re-imagining health innovation to deliver public value”. The author gives details of how patents retard innovation in the pharmaceutical field and more importantly what a better system would look like. Patents would not necessarily disappear but their role would be different. The most interesting ideas are in the section entitled ”Transformative proposals: Re-imagining our health innovation system to deliver public value”. It’s at
    – Dean Baker has written extensively on the topic, in particular how USAmericans are being ripped off to the tune of $300 billion yearly due to the backward patent system. One of his many articles is at
    – Doctors Without Borders-Médecins sans frontières (MSF) has also proposed a non-profit model for drug development. Articles regarding drugs by MSF:

  9. Anthony G Stegman

    The profit motive drives all kinds of shenanigans. The pharmaceutical industry should be nationalized, along with energy, along with utilities, along with health care, along with education, along with housing. Luis Vuitton can remain private. As can Porsche. This will require a vast ideological shift to accomplish, but is necessary if we are to build a better and more fair society. Capitalism is the problem. That is so obvious.

  10. fjallstrom

    Iirc it was in 2014 that delinkage – a model to de-link research and production of medicines – was on the WHO agenda. China, India and other countries in the global South was onboard in pitching in their part of research costs, and it looked like the proposal would pass. However, the US delegate mustered small island nation and agenda tricks to defeat it.

    A vote in favour at the WHO would of course just be a start point, but a start point none the less. Apparently a step to far for the US government.

    “Delinkage” as a search term yields mostly hits on this proposed reform, so that is a start for anyone who wants to read more.

  11. Domfresco C

    And how do you incent pharma companies to continue to push the boundaries of innovation if you wipe away any chance they have at making a return on investment?

    The “corporate greed” narrative is well-founded in many instances, but, as they say, unintended consequences rarely arrive with lube!

    I shudder to think about the borderline profitable drugs that manufacturers would cease to produce and other similar measures corporates would take if the government stepped in to regulate these companies….

    I like the spirit here but any regulatory change will not be without consequences detrimental to the existing system, albeit one that is flawed. Now, if we talked a bit about the regulatory capture produced by insurance regulations, you’d have my ear…

    1. Yves Smith Post author

      With all due respect, you have been persuaded to accept industry propaganda. The drug industry is now pushing drugs with marginal performance and often high cost. The Alzheimers med Aduhelm is the poster child, but there are many many many less celebrated examples.

      On top of that, drug companies far more money on marketing than on R&D, and in nominal R&D, 80% of “new drug applications” are not for new drugs but minor reformulations of existing drugs to extend patent life.

      The current system is not producing “innovation” but merely profiteering by using public research. By contrast, non-profit Cuba is a top player globally in biotech. I know of pro athletes who go to Cuba to get treatments that don’t exist here.

      So this institutionalized system of looting is not serving the public who is the funder of the riskiest research and should get the highest payoff.

      I must add that accordingly, Big Pharma cos for decades have mainly had lawyers, not scientists, as CEOs, again reflecting what they consider to be most important to their success.

  12. Felix_47

    There are some parallels throughout the health care system. Doctors, whose training is subsidized by the government in many ways, charge by fee for service. That means they make more money with more procedures and medications. The result is obvious. Studies that advocate less treatment are never published. Results are padded. As Yves points out many medications, and I would point out, many surgeries are of marginal benefit. What to do? The only solution is to put all medical providers on salary. The only way to gatekeep and manage medical care is to let those trained to do that do it.,,,,,,doctors. But financial incentives should not stand in the way of doing the best job possible. Malpractice risk should be carried by the government. Doctors would make a lot less money but most doctors I know would rather focus on their profession than on their income. There is a model health care system in the world that we could emulate and significantly improve with much better financing……England’s national health service. Rather than reinvent the wheel we could adopt a similar scheme and modify it as needed. The fact that our leading Congressional legislators and kingmakers are so opposed suggests who is buttering their bread.

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