The villain in this story isn't Merck, but rather research universities that count on patent licensing fees derived from patents on publicly-funded work to pay for their operations (enabled by the Bayh-Dole Act, 1980[1]).
My day job is working with these kinds of institutions, and a typical research grant will consist of two parts - the "directs" that fund the actual cost of conducting the research and the "indirects" that is a flat fee negotiated between the university and the granting agency that goes directly to the university's coffers to pay for facilities and other expenses and can be as high as 40% to 50%. In addition to the direct and indirect costs of research that taxpayers are paying for, the federal gov't allows universities to patent the outcomes of their inventions, under the theory that this will produce sufficient financial incentive for the research to become "productized" and brought to the market for the benefit of the public. Modern research institutions employ dedicated departments for this process, called "technology transfer offices".
This isn't an unreasonable policy overall, as the gulf between what can be shown to be possible in a lab is extremely wide from being a marketable product with a business around it to support the manufacture, marketing, and further development of the original patented invention, and in many places, the revenue generated by the technology transfer office often doesn't cover the cost of running it. However, universities persist, because finding a successful patent is like finding a successful musical act - it's an extreme Pareto distribution where 80% (or more) of revenue is generated by 20% (or fewer) of the patents.
Personally, I’m of the opinion that the Bayh-Dole Act should be repealed and just like the open-access movement in academic publishing[3] and inventions derived from publicly-funded research should be in the public domain. (And I’ve pushed my own former employers and clients in this direction in the past.) However, doing that will fundamentally change the structure of how research is funded in the US, and some reform elsewhere may be necessary to provide the financial incentives to have US companies do the scut work of commercializing US research products, especially to compete against other countries who might be able to do that cheaper with lower human costs, and end up selling those benefits back to us. This may be doable with a hefty injection of funds into Small Business Innovation Research (SBIR) program[4] to encourage more US firms to take the risk of commercializing that one research “hit” that generates US jobs and revenues instead of letting another country capture those hits instead.
So, while some drug reform might be helpful here (especially raising the bar on what constitutes “novel” for minor innovations to secure longer patent terms[5]), the issue you’ve identified in your post is broader than just drugs, and will require overhauling our entire modern research funding apparatus to prevent future shenanigans.
This should be its own post! A lot of information very well presented. I think the main point I object to is commercialization of drug research when the research is for the common good. It’s one thing to commercialize, say, Velcro, which was developed in the NASA moonshot days. Or for the MIT media lab to commercialize their many innovations. But it’s another category to commercialize a treatment for a pandemic-causing viral illness. And that kind of makes Merck a little bit of a villain here too in my opinion. They just don’t realize they are being one.
I'll hold off on endorsing the villainy line until we see what the final pricing is (likely $700), since we don't really have a good mechanism for bringing a drug like this to market without a "Merck" to set up the manufacturing and logistics at the very least:
"This makes molnupiravir far more practical than the other treatment currently available for Covid-19, monoclonal antibodies—made by Regeneron, and GlaxoSmithKline (GSK) with Vir Biotechnology—which require intravenous administration in hospitals or clinical settings. Molnupiravir is cheaper, too. At about $700 per course, it costs nearly half the price of Regeneron’s $1,250 cocktail, and a third of GSK’s $2,100 treatment. It is less effective, however: Antibody cocktails have had a success rate of 70% to 85% in reducing hospitalization and death."[1]
I think Merck should be able to make some money here, especially given that it funded the clinical trials that showed the improved efficacy (and those trials can be EXPENSIVE) AND it's both a (partial) medical and financial improvement over the status quo. That said, if it looks like Merck goes all Pharma Bro[2] on it and starts squeezing everyone, then I'll join your chorus.
And on the larger issue of drug reform, there might be a decent post comparing the American system of creating new medicines with some other systems (Chinese, Russian, European) to see how we're stacking up in the age of COVID. On the vaccine and therapeutic front, we seem to be doing quite well in terms of timely innovations, and I hope we use that as the basis for a new American COVID-diplomacy once we get our house in order to start proving again that we're a good friend to have on the global stage.
Really good points. No innovative process or product is much good if it can't be tested. manufactured, packaged and distributed. None of that is free. Maybe the pricing of drugs developed using public funds could be regulated like public utility pricing. Of course that turns into a nightmare (highly political) accounting for cost of money, fair ROI, what investment costs are allowed, etc. - essentially controlling profits. Probably the best bet is to require that licensing be non-exclusive and the licensing fees be set to recover costs plus **%.
"Maybe the pricing of drugs developed using public funds could be regulated like public utility pricing."
You might get a lot of what you're looking for if you allowed Medicare to use its purchasing power to negotiate drug prices, and allowed hospitals and insurance companies to use that as a starting point in their own negotiations. Might avoid a lot of complexity for a lot of the pricing gain:
For the licensing, a lot of standards organizations already use "reasonable and non-discriminatory" licensing[1] for patents that may be part of a standard like WiFi and USB.
Might be a decent existing model to consider for products of publicly-funded research.
For those of you who are subscribers to the Dispatch, there's a great article by Scott Lincicome today about why we should be cheering on the big drug companies making bank during the pandemic, since that will spur further innovation in the field and new market entrants:
I just read it. I have mixed feelings. I think “adding to” the global GDP is a very tricky “see what you did there” number when we are dealing with a calamity. It’s like claiming weapons manufacturers should get a giant profit because they deter war, which would of course be catastrophic, and therefore add to the GDP. Except when there is war then you can measure the gain. Sure the vax developers deserve a profit. But I don’t trust them on the investment side.
I think a key metric will be seeing what new products from existing firms make it to the market, using the COVID research and profits as a foundation - especially new mRNA "products" - and whether we see new entrants into the market in the form of new biotech start-ups looking to capture some of the new attention and lucre being directed to vaccines.
Let's all set a calendar reminder to check in after a couple of years has elapsed.
"Such estimates are obviously rough, but they do allow us to have some much-needed perspective—and a back-of-the-napkin calculation—about the scale of the Pfizer/BioNTech and Moderna profits in relation to the overall benefits that these companies’ sales have provided the world. Assuming, for example, that BioNTech/Pfizer, which plan to have vaccine production capacity of 4 billion doses (2 billion courses) in 2022, each make even as much as $40 billion in profit by 2023 (a liberal guess given the data above), that would be only about 1 percent of the $7.5 trillion in global GDP gained—and slightly more than 0.5 percent of the $15 trillion in total social benefits—from those 2 billion courses."
The villain in this story isn't Merck, but rather research universities that count on patent licensing fees derived from patents on publicly-funded work to pay for their operations (enabled by the Bayh-Dole Act, 1980[1]).
My day job is working with these kinds of institutions, and a typical research grant will consist of two parts - the "directs" that fund the actual cost of conducting the research and the "indirects" that is a flat fee negotiated between the university and the granting agency that goes directly to the university's coffers to pay for facilities and other expenses and can be as high as 40% to 50%. In addition to the direct and indirect costs of research that taxpayers are paying for, the federal gov't allows universities to patent the outcomes of their inventions, under the theory that this will produce sufficient financial incentive for the research to become "productized" and brought to the market for the benefit of the public. Modern research institutions employ dedicated departments for this process, called "technology transfer offices".
This isn't an unreasonable policy overall, as the gulf between what can be shown to be possible in a lab is extremely wide from being a marketable product with a business around it to support the manufacture, marketing, and further development of the original patented invention, and in many places, the revenue generated by the technology transfer office often doesn't cover the cost of running it. However, universities persist, because finding a successful patent is like finding a successful musical act - it's an extreme Pareto distribution where 80% (or more) of revenue is generated by 20% (or fewer) of the patents.
Personally, I’m of the opinion that the Bayh-Dole Act should be repealed and just like the open-access movement in academic publishing[3] and inventions derived from publicly-funded research should be in the public domain. (And I’ve pushed my own former employers and clients in this direction in the past.) However, doing that will fundamentally change the structure of how research is funded in the US, and some reform elsewhere may be necessary to provide the financial incentives to have US companies do the scut work of commercializing US research products, especially to compete against other countries who might be able to do that cheaper with lower human costs, and end up selling those benefits back to us. This may be doable with a hefty injection of funds into Small Business Innovation Research (SBIR) program[4] to encourage more US firms to take the risk of commercializing that one research “hit” that generates US jobs and revenues instead of letting another country capture those hits instead.
So, while some drug reform might be helpful here (especially raising the bar on what constitutes “novel” for minor innovations to secure longer patent terms[5]), the issue you’ve identified in your post is broader than just drugs, and will require overhauling our entire modern research funding apparatus to prevent future shenanigans.
[1] https://en.wikipedia.org/wiki/Bayh%E2%80%93Dole_Act
[2] https://hechingerreport.org/think-universities-are-making-lots-of-money-from-inventions-
think-again/
[3] https://en.wikipedia.org/wiki/Open_access
[4] https://en.wikipedia.org/wiki/Small_Business_Innovation_Research
[5] https://www.nbcnews.com/health/health-news/drugmakers-play-patent-game-ward-competitors-n915911
This should be its own post! A lot of information very well presented. I think the main point I object to is commercialization of drug research when the research is for the common good. It’s one thing to commercialize, say, Velcro, which was developed in the NASA moonshot days. Or for the MIT media lab to commercialize their many innovations. But it’s another category to commercialize a treatment for a pandemic-causing viral illness. And that kind of makes Merck a little bit of a villain here too in my opinion. They just don’t realize they are being one.
I'll hold off on endorsing the villainy line until we see what the final pricing is (likely $700), since we don't really have a good mechanism for bringing a drug like this to market without a "Merck" to set up the manufacturing and logistics at the very least:
"This makes molnupiravir far more practical than the other treatment currently available for Covid-19, monoclonal antibodies—made by Regeneron, and GlaxoSmithKline (GSK) with Vir Biotechnology—which require intravenous administration in hospitals or clinical settings. Molnupiravir is cheaper, too. At about $700 per course, it costs nearly half the price of Regeneron’s $1,250 cocktail, and a third of GSK’s $2,100 treatment. It is less effective, however: Antibody cocktails have had a success rate of 70% to 85% in reducing hospitalization and death."[1]
I think Merck should be able to make some money here, especially given that it funded the clinical trials that showed the improved efficacy (and those trials can be EXPENSIVE) AND it's both a (partial) medical and financial improvement over the status quo. That said, if it looks like Merck goes all Pharma Bro[2] on it and starts squeezing everyone, then I'll join your chorus.
And on the larger issue of drug reform, there might be a decent post comparing the American system of creating new medicines with some other systems (Chinese, Russian, European) to see how we're stacking up in the age of COVID. On the vaccine and therapeutic front, we seem to be doing quite well in terms of timely innovations, and I hope we use that as the basis for a new American COVID-diplomacy once we get our house in order to start proving again that we're a good friend to have on the global stage.
[1] https://qz.com/2068247/merck-could-make-up-to-7-billion-from-its-covid-19-drugs-in-2021/
[2] https://www.nytimes.com/2015/09/21/business/a-huge-overnight-increase-in-a-drugs-price-raises-protests.html
Really good points. No innovative process or product is much good if it can't be tested. manufactured, packaged and distributed. None of that is free. Maybe the pricing of drugs developed using public funds could be regulated like public utility pricing. Of course that turns into a nightmare (highly political) accounting for cost of money, fair ROI, what investment costs are allowed, etc. - essentially controlling profits. Probably the best bet is to require that licensing be non-exclusive and the licensing fees be set to recover costs plus **%.
"Maybe the pricing of drugs developed using public funds could be regulated like public utility pricing."
You might get a lot of what you're looking for if you allowed Medicare to use its purchasing power to negotiate drug prices, and allowed hospitals and insurance companies to use that as a starting point in their own negotiations. Might avoid a lot of complexity for a lot of the pricing gain:
https://www.kff.org/medicare/issue-brief/whats-the-latest-on-medicare-drug-price-negotiations/
Good idea. Price/profit regulation is something I should have deleted before posting. I still like the idea of non-exclusive licensing.
For the licensing, a lot of standards organizations already use "reasonable and non-discriminatory" licensing[1] for patents that may be part of a standard like WiFi and USB.
Might be a decent existing model to consider for products of publicly-funded research.
[1] https://en.wikipedia.org/wiki/Reasonable_and_non-discriminatory_licensing
For those of you who are subscribers to the Dispatch, there's a great article by Scott Lincicome today about why we should be cheering on the big drug companies making bank during the pandemic, since that will spur further innovation in the field and new market entrants:
https://capitolism.thedispatch.com/p/pfizer-will-earn-billions-in-profits
It doesn't cover the publicly-funded research angle, but seemed close enough topic-wise to share with folks here.
I just read it. I have mixed feelings. I think “adding to” the global GDP is a very tricky “see what you did there” number when we are dealing with a calamity. It’s like claiming weapons manufacturers should get a giant profit because they deter war, which would of course be catastrophic, and therefore add to the GDP. Except when there is war then you can measure the gain. Sure the vax developers deserve a profit. But I don’t trust them on the investment side.
I think a key metric will be seeing what new products from existing firms make it to the market, using the COVID research and profits as a foundation - especially new mRNA "products" - and whether we see new entrants into the market in the form of new biotech start-ups looking to capture some of the new attention and lucre being directed to vaccines.
Let's all set a calendar reminder to check in after a couple of years has elapsed.
"Such estimates are obviously rough, but they do allow us to have some much-needed perspective—and a back-of-the-napkin calculation—about the scale of the Pfizer/BioNTech and Moderna profits in relation to the overall benefits that these companies’ sales have provided the world. Assuming, for example, that BioNTech/Pfizer, which plan to have vaccine production capacity of 4 billion doses (2 billion courses) in 2022, each make even as much as $40 billion in profit by 2023 (a liberal guess given the data above), that would be only about 1 percent of the $7.5 trillion in global GDP gained—and slightly more than 0.5 percent of the $15 trillion in total social benefits—from those 2 billion courses."