The National Pharmaceutical Development Administration (NPDA) Doesn’t Exist, but It Should
By Jonathan Donald Jenner
Publicly funded research should yield publicly owned drugs which are available to the public at the cost of the production.
In the capitalism of today, research by the pharmaceutical industry is guided the whims of the market, buttressed by companies’ ability to price gouge under the pretense of research-incentivizing patents, or government granted monopoly power. This kills us (see our own Brian Callaci’s great piece ‘Maximizing Shareholder Value Is (Literally) Killing Us’). But we don’t have to pay for and develop new drugs the way we do. A (hypothetical) National Pharmaceutical Development Administration (NPDA), funded by taxpayers, could develop drugs that would then be owned by taxpayers, who, for obvious reasons, wouldn’t price gouge themselves. More, research priorities for which drugs to develop would be set publicly, and go to diseases where we need them the most.
A quick overview of our current situation: when research is guided by private, profit making firms, it means that resources for drug development are dedicated to diseases of the rich (more precisely, where people with the ability to pay compromise a significant portion of the afflicted). Promising research for drugs that can treat diseases that poor people get, like Ebola, is dropped due to a lack of potential profit in undergoing research. It also means that research is poured into so-called ‘copy-cat’ drugs, which treat illnesses that are treatable by other drugs, but are different enough on a molecular level to receive their own patents. With respect to the distribution of these drugs in monopoly markets, it also means that Turing Pharmaceuticals can increase the price of an AIDS drug by five thousand percent[i]. Since profit is king under our current regime of drug development and distribution, public concerns over the kinds of drugs we develop, and the accessibility of those drugs to those who need them, is not prioritized in the way that it ought to be.
Against this backdrop, the case for a National Pharmaceutical Development Administration (NPDA) is clear. The NPDA would be tasked with developing and patenting new drugs, and their patents would be held keeping the public interest in mind. These means the NPDA wouldn’t have a fiduciary responsibility to maximize profit, but instead would be tasked with distributing life-saving drugs as widely as possible.
But what would the NPDA look like? Here’s some back-of-the-envelope numbers to give the proposal a few legs:
- Program Costs: Currently, in the United States, the National Institutes of Health[ii] has a budget of $30.3 billion. For no particular reason except keeping-up-with-the-Joneses, let’s start out our hypothetical NPDA with a $30 billion dollar budget. That’s a lot of money, indeed. But it’s only 15% of the annual expenditure on the Iraq War (without counting future interest on debt incurred). And it’s only 5% of what we spent on defense in 2014 (not including veteran’s benefits), 7% of our total ‘Health’ outlays in 2014, and 0.8% of total government expenditure. The top 10 biggest pharmaceutical firms in the world spend a combined $66 billion on research and development (and $98 billion on marketing!), so the NPDA, at our chosen size, would represent roughly half the research and development of the 10 biggest firms, without worry, concern, or waste on marketing, as per their mandate.
- Returns: What could we get with $30 billion dollars annually? It’s unclear what it costs to bring a drug to market. Estimates range from a median of $43 million per new drug (an academic report), to $800 million (a journalistic book), to $2.6 billion (from the Tufts Center for the Study of Drug Development, which is funded, in part, by drugmakers, and there are good reasons to doubt this figure, like the assumed interest rates (10%!!), and other costs). For the sake of back-of-the-envelope calculations, let’s assume $1 billion per drug, with the acknowledgment that it’s an estimate on the conservative end, with a wide variance. Also, it takes time to bring drugs to market. But after the NPDA has been around for a decade or so, we can assume that we’ll be looking at 30 new drugs introduced per year. So far, so good!
- Savings: Americans spent $374 billion on pharmaceuticals in 2014, with 74% of that spending, or $277 billion, spent on protected (patented) brands. Let’s assume that when the NPDA is a mature agency, it will be responsible for 30 percent of what would otherwise be branded drugs coming to market (simply, the ratio of its R&D outlays to Big Pharma’s outlays). With the additional assumption that drugs from the NPDA would be at least as cheap as generic drugs (they would, in fact, be cheaper), and the Government Accountability Office’s own claim that generic drugs offer 74% savings against patented drugs, Americans would save at least $62 billion a year. That’s a $30 billion outlay for at least $62 billion in savings. Recall that we’re already paying that $62 billion, either directly out-of-pocket or indirectly through our inexplicably for-profit insurance companies. Thus, paying $30 billion in taxes for at least $32 billion net savings would be a win for everyone, except those who profit of off our sickness.
- Quality of Research: The NPDA, whose research priorities would be guided by public health officials, wouldn’t need to waste precious resources chasing down ‘copy-cat’ or ‘me-too’ kinds of drugs, as is common practice in private, for-profit, pharmaceutical companies. And we already have evidence that publicly funded drug research is better for society than private research: research published in the New England Journal of Medicine shows that “[Public-Sector Research Institutions] tend to discover drugs that are expected to have a disproportionately important clinical effect.”
This rough sketch of the NPDA is, admittedly, rough. The figures above are rough calculations, where I’ve tried to base estimates and assumptions on publicly available data and with cautious, conservative assumptions. An actual, really existing NPDA would no doubt look very different, but the case for public research that yields publicly owned medicine patents for our nation’s (and the world’s!) health is clear. Why aren’t we talking about this on a national level, and why don’t we have an NPDA already?
[i] It seems that Turing CEO Martin Shkreli’s real mistake was that he brought too much too quickly: Valeant Pharmaceuticals business model, which is to purchase patented drugs and gouge prices at a more modest ninety to two thousand percent over a longer time period, managed to generally avoid such public uproar, although Bernie Sanders and Elijah Cummings have been heading up the charge for caps on drug prices.
[ii] The National Institutes of Health is a great organization, but they are different from the hypothetical NPDA in that the NIH funds and does ‘upstream’ research on promising pharmaceutical developments, leaving patenting and marketization to ‘downstream’ private firms. This relationship is testament to the fact that pharmaceutical companies already piggyback on public tax dollars, as tragically demonstrated with the strange case of AZT, involving the NIH, Burroughs Wellcome Co. (now GlaxoSmithKline), and people dying of AIDS.