Finding Cures for Tropical Diseases:

1
European School on New Institutional Economics
Finding Cures for Tropical Diseases Choosing
the Right Incentives
Stephen M. Maurer Goldman School of Public
Policy, UC Berkeley May 23, 2007
2
Introduction
500 Million People The Patent System Hasnt
Worked Mandatory Radicalism A Once in a
Lifetime Chance Bill Gates Antitrust
Troubles Multiple Schemes, Complex Politics How
to Choose?
3
Introduction
Putting Innovation Theory to Work A Clear
Objective Cost Containment Rational And
Unsentimental Comparison
4
Overview
Reforming Patents Price Discrimination,
Strategic Investing, Harmonization Boosted
Demand. Patent-Like Solutions Guaranteed
Purchase Commitments Virtual Pharma
Companies Private-Public Partnerships Strategy
Conclusions
5
Reforming Patents Price Discrimination Har
monization Strategic Investing Boosted
Demand
6
Reforming Patents
Price Discrimination A Good Solution for Rich
Nation Drugs Parallel Imports Rich Nation
Health Ministries A Political Problem Does Not
Generate RD Funds
J. Lanjouw, Outline of Foreign Filing License
Approach (2004), available at http//www.cgdev.or
g/docs/FFLOutline.pdf.
7
Reforming Patents
Harmonization Markets are Inadequate! Western
sponsors are essential Partial Exceptions TB
(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/Eco
nomics20Report20Full20(final).pdf
8
Reforming Patents
Strategic Investing Information Asymmetry
Crowding Out Private-Public
Partnerships Access Pricing
9
Reforming Patents
Boosted Demand The Sunk Costs
Problem Discounting the Payoff A Traditional
Fix
10
Patent-Like Solutions
11
Patent-Like Solutions
Guaranteed Purchase Schemes AdvancedMarkets Is
It Feasible? Is It Desirable? Setting the
Prize Estimating RD Costs
AdvancedMarkets Working Group, Making Markets for
Vaccines A Practical Plan to Spark Innovation
for Global Health (2002).
12
Patent-Like Solutions
Estimating RD Costs (Pt. 1) The Accounting
Answer Drug Company Data Market Arguments A
20 30 Uncertainty?
Joseph DiMasi, Ronald Hansen Henry Grabowski,
The Price of Innovation New Estimates of Drug
Development Costs, Journal of Health Economics
22151 (2003).
E. Berndt et al., Advanced Markets for a Malaria
Vaccine Estimating Costs and Effectiveness
(2005).
13
Patent-Like Solutions
Estimating RD Costs (Pt. 2) Is the Accounting
Answer Right? Pro Forma Estimates Prizes
Internal Financing
14
Patent-Like Solutions
Additional Costs Technology Shocks Who Gets
The Savings? Agency Problems (Sponsors) Risk
Premium Economies of Scale
15
Patent-Like Solutions
Other Issues Why an Independent Adjudication
Committee? Two-stage games bribes Me-Too
Drugs Cumulative Innovation Not The Patent
System! Can Virtual Pharma Do Better?
16
Virtual Pharma Solutions
17
Virtual Pharma
Beyond Monolithic Drug Companies Virtual
Pharma Public-Private Partnerships (PPPs) PPP
Strategy Pay-as-You-Go vs. End-to-End A
Preliminary Design Open Source Hybrids
18
Virtual Pharma
PPP Strategy (I) Opening The Black Box? A
Bigger Toolbox But How Are Incentives Affected?
Yooki Park, Essays in the Economics of Innovation
Incentives (2006)
19
Virtual Pharma
Case 1 No Learning PaYG y1 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.
20
Virtual Pharma
Case 2 Firms Learn E2E Costs Less The Sunk
Costs Argument Case 3 Firms Sponsors Both
Learn PaYG Costs Less Sponsors Adjust y2 Mixed
Cases
21
Virtual Pharma
PPP Strategy (II) A Preliminary
Design Characterizing the Pipeline Social
Challenges Toolbox Design
Stephen M. Maurer, Choosing the Right Incentive
Strategy for Research and Development in
Neglected Diseases, WHO Bulletin 84376 (2006).
22
Virtual Pharma
Characterizing The Drug Discovery
Pipeline Basic Research Finding
Targets Validating Targets Finding Lead
Compounds Optimizing Lead Compounds Process
Development Pre-Clinical Testing Phase I
Tests Phase II Tests Phase III
Tests Approval Phase IV Tests
Stephen M. Maurer, The Right Tools (2005)
(report for World Health Organization), available
at http//gspp.berkeley.edu/iths/MAURER_DrugRsch.
pdf.
23
Virtual Pharma
Science Tasks Basic Research Finding
Targets Validating Targets Finding Lead
Compounds Optimizing Lead Compounds Process
Development Pre-Clinical Testing Phase I
Tests Phase II Tests Phase III
Tests Approval Phase IV Tests
How Disease Works Points of Intervention Findi
ng Drugs Learning to Make Drugs Testing
24
Virtual Pharma
Social Challenges Basic Research Finding
Targets Validating Targets Finding Lead
Compounds Optimizing Lead Compounds Process
Development Pre-Clinical Testing Phase I
Tests Phase II Tests Phase III
Tests Approval Phase IV Tests
Eliciting Information
Agency Problems (Researchers)
Cost
25
Virtual Pharma
Social Challenges Eliciting Information
Basic Research Finding Targets Optimizing
Targets Finding Lead Compounds Optimizing Lead
Compounds Process Development Pre-Clinical
Testing Phase I Tests Phase II Tests Phase III
Tests Approval Manufacturing Phase IV Tests
26
Virtual Pharma
Toolbox Eliciting Information Prizes Grants
Contract Research Open Source
27
Virtual Pharma
Social Challenges Agency Problems
(Researchers) Basic Research Finding
Targets Optimizing Targets Finding Lead
Compounds Optimizing Lead Compounds Process
Development Pre-Clinical Testing Phase I
Tests Phase II Tests Phase III
Tests Approval Manufacturing Phase IV Tests
28
Virtual Pharma
Toolbox Agency Problems (Researchers) Prizes
Grants Contract Research Open Source
29
Virtual Pharma
Social Challenges Getting the Best Price Basic
Research Finding Targets Optimizing
Targets Finding Lead Compounds Optimizing Lead
Compounds Process Development Pre-Clinical
Testing Phase I Tests Phase II Tests Phase III
Tests Approval Manufacturing Phase IV Tests
30
Virtual Pharma
Toolbox Getting the Best Price Prizes Grants
Contract Research Open Source A Happy
Coincidence
31
Virtual Pharma
Getting the Best Price, ctd Enforcing The Best
Price Buying Power Repeat Games Economies
of Scale Can Non-Profits Pick Winners? Is
Pharma Efficient? Foundations as
Shareholders? An Empirical Question
32
Room for Open Source?
Software DNA? Advantages Volunteers Efficient
Pricing Transparency New 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)
33
Do Hybrids Make Sense?
Economies of Scale A Strategic Investing
Story Picking Winners vs. Science Politics
34
Conclusion
35
Conclusion
Price Discrimination Rich Nation Drugs A
Political Problem Strategic Investing Tuberculos
is? Malaria? AIDS? Crowding out access
pricing AdvancedMarkets vs.Virtual
Pharma Dengue, Leishomaniasis , etc.
Uncertain RD Costs vs. Cold-Blooded
Foundations Bill Gates, Businessman
36
Conclusion
Putting Innovation Theory to Work
37
European School on New Institutional Economics
Finding Cures for Tropical Diseases Choosing
the Right Incentives
Stephen M. Maurer Goldman School of Public
Policy, UC Berkeley May 23, 2007