Update: S.2333 passed Senate HELP today on a 17-3 bipartisan vote, with the delinkage study included.
On Thursday, July 20, 2023, the Senate HELP Committee will consider a bill to reauthorize the Pandemic and All-Hazards Preparedness and Response Act (PAHPA).
A 107 page manager’s amendment for the bill contains a large number of topics, including a proposed National Academies study of the feasibility, costs and benefits of delinking R&D incentives for drug development from the grant of patent or regulatory monopolies, set out in Section 308 of the amendment text (shown below).
There have been efforts to fund such a study for several years, and the proposal still needs to clear the Committee, the full Senate and survive a negotiation with the House of Representatives. The study, if it is included in the final version of an enacted bill, would mark the first time the federal government has taken a serious look at broad alternatives to time-limited patent or regulatory monopolies to stimulate investments in R&D, although innovation inducement prizes, including market entry rewards, and prize like mechanisms like the FDA priority review voucher (worth roughly $100 million in recent years), have been used or considered for narrower cases, such as to reward development of new antibiotic drugs, or as an additional incentive to develop qualifying products for neglected or rare diseases.
In the current version, the National Academies is asked to study “alternative models for directly funding, or stimulating investment in, biomedical research and development that delink research and development costs from the prices of drugs.” The study will be required to estimate “the dollar amount of innovation prizes for different stages of research and development of different classes or types of drugs, and total annual funding, that would be necessary to stimulate investment sufficient to achieve such successful drug development and related milestones,” and “the relative effectiveness and efficiency of such alternative models in stimulating innovation, compared to the status quo that includes patents and regulatory exclusivities.”
For years, the current system of incentives based upon the grant to time-limited monopolies has been subject to criticism for a number of known flaws, such as the excessive investments in products that do not improve health outcomes, excessive expenditures on marketing, excessive prices, and the negative impacts of high prices on restrictive formularies, affordability and inequality, and more generally the notion that the beneficiaries of the monopolies use their great economic power to defeat efforts to regulate the industry in the public interest.
Despite its many flaws, the assumption that strong monopolies are necessary rewards to induce investments in R&D has received strong bipartisan support in the United States and in many other countries. This support is fundamentally based upon the notion that no alternatives exist, and that eliminating or weakening monopolies would lead to less private investment in R&D and less innovation. The proposed study gives policy makers a chance to take a second look at that assumption, and see if monopolies are necessary at all, looking in particular at robust market entry rewards and other inducement prizes, as well as expanded direct funding or other R&D subsidies.
The pharmaceutical market is particularly interesting to consider. Unlike markets for most goods, consumers generally don’t pay for novel drugs, relying instead on a complex system of third party government or private sector insurance programs. These third party payers already play a role in evaluating the economic value of novel drugs.
In bills previously considered by Congress regarding the broad delinking on R&D incentives from the grant of a monopoly, a leading approach is to continue to grant patents on inventions, but to use patents to establish ownership claims to market entry rewards, rather than an exclusive right to make and sell products. The market entry rewards would be paid out in 10 annual evaluations of the products use and efficacy, with a number of nuances to make the incentives more efficient. The modern approach to market entry reward payments was not enough to impress policy markets at first, because of the challenges of transition from the current system to anything that is radically different. But in recent years, the notion of progressive implementation of delinkage over time has given policy makers a new and more promising option, one where the monopolies are capped initially at 14 years, and that cap is progressively reduced over time while the market entry rewards are also increased.
Market entry rewards are not the only innovation inducement prizes of interest, and the National Academies is also asked to look at upstream milestone prizes. Another important type of inducement prize is the open source dividend, which would share the market entry reward payments with persons or entities that openly shared knowledge, biologic resources, data or inventions that were deemed useful in the development of a product.
After the manager’s amendment was made public, PhRMA issued a statement:
“we are deeply concerned about a last-minute insertion calling for a study on replacing critical intellectual property protections and regulatory incentives with a prize program that lets the government pick winners and losers”
The actual design of recent innovation inducement prize proposals create a market driven reward system, based upon real world evidence that products work. And while the government plays a role, as it does now funding the NIH, providing the Orphan Drug Tax Credit, creating regulatory monopolies on test data and for orphan drugs, and providing funding for Medicare, Medicaid and other federal programs, and requiring private insurance coverage of drugs, the rewards would be shaped by competition among suppliers of new products, with transparent and known criteria that is more rationally related to incentivizing innovation than the current system. But these claims would be for the National Academies to evaluate, not PhRMA in press releases.
Here is the study terms of reference in the current version of the amendment:
SEC. 308. NATIONAL ACADEMIES STUDY ON PRIZES.
(a) IN GENERAL.—Not later than 90 days after the date of enactment of this Act, the Secretary of Health and Human Services shall seek to enter into an agreement with the National Academies of Sciences, Engineering, and Medicine (referred to in this section as the ‘‘National Academies’’) to conduct a study to examine—
(1) alternative models for directly funding, or stimulating investment in, biomedical research and development that delink research and development costs from the prices of drugs, including the progressive replacement of patents and regulatory exclusivities on new drugs with a combination of expanded support for research and innovation prizes to reward the successful development of drugs or achievement of related milestones;
(2) the dollar amount of innovation prizes for different stages of research and development of different classes or types of drugs, and total annual funding, that would be necessary to stimulate investment sufficient to achieve such successful drug development and related milestones;
(3) the relative effectiveness and efficiency of such alternative models in stimulating innovation, compared to the status quo that includes patents and regulatory exclusivities;
(4) strategies to implement such alternative models described in paragraph (1), including a phased transition over time;
(5) the anticipated economic and societal impacts of such alternative models, including an assessment of impact on—
(A) the number and variety of new drugs that would be developed, approved, and marketed in the United States, including such new drugs intended to prevent, diagnose, or treat a rare disease or condition;
(B) the rate at which new drugs would be developed, approved, and marketed in the United States;
(C) access to medication and health outcomes;
(D) average lifespan and disease burden in the United States;
(E) the number of manufacturers that would be seeking approval for a drug or bringing a drug to market for the first time;
(F) Federal discretionary and mandatory spending; and
(G) public and private insurance markets.
(b) AUTHORIZATION OF APPROPRIATIONS.—To carry out this section, there is authorized to be appropriated $3,000,000 for fiscal year 2024.
(c) REQUIREMENTS.—In conducting the study pursuant to subsection (a), the National Academies shall hold not fewer than 2 public listening sessions to solicit feedback from interested parties, including representatives of academia, professional societies, patient advocates, public health organizations, relevant Federal departments and agencies, drug developers, representatives of other relevant industries, and subject matter experts.
(d) REPORT.—Not later than 2 years after the date of enactment of this Act, the National Academies shall submit to the Committee on Health, Education, Labor, and Pensions and the Committee on Appropriations of the Senate and the Committee on Energy and Commerce and the Committee on Appropriations of the House of Representatives a report on the study conducted pursuant to subsection (a).