Tuesday, April 07, 2015

A thought about perverse incentives

I wonder if the incentives built into our system for pharmaceutical research are leading us down the wrong path. Companies that develop new drugs and pay for the extensive testing needed to get FDA approval then:
  • obtain a monopoly on the sale of the drug for nearly two decades. and 
  • protected by the monopoly, price the drug to maximize income to the company.
A drug need not have a huge market to make a big profit if the price can be very high. How much will a patient or insurer be willing to pay for a course of treatment with a drug? Perhaps the same or just less than the preexisting course of treatment that offers comparable therapeutic value. So for a patient that has cancer and is looking at a course of treatment combining radiation and surgery with lots of laboratory work and physician consultation, a drug with comparable therapeutic value might be priced very high indeed.

A vaccine might have a very large market, and prevent a lot of disease, disability and death, but probably could not be priced very high.
  • A lot of the people who would be part of the market could not pay much for a vaccine;
  • People who are not sick are not willing to pay much for a treatment that only reduces still further what they perceive to be a small probability of getting a disease if not immunized/
  • This is true even without the anti-vaccine fears that are being stirred up.
Of course the executives of the firms choosing development projects are making decisions based on the likelihood that they will be successful, that if successful, they will be the first in the field.

So we have Viagra, which is very profitable for the firm that developed it, but we don't yet have a vaccine against malaria nor a vaccine against HIV.

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