Open Source: How can we reduce drug prices while preserving robust R&D?

It’s a false dichotomy to insist we must choose between innovation and access to affordable medicines. We [at DNDi] don’t rely on high prices or product sales to recoup R&D investments. Rather, public and private contributions pay for R&D up front, allowing DNDi to steer drug development to respond to priority public health needs, promote greater sharing of research knowledge and data, and price products affordably. With this approach, we have developed seven affordable, nonpatented treatments for five neglected diseases at a fraction of the cost of the traditional pharmaceutical business model.

Drug companies spend 20–40 percent of revenue on marketing and advertising. That should be reduced. They enjoy profit margins of roughly three times the S&P 500 average [return]. Those could be trimmed. Finally, health and drug executives were the highest paid of any U.S. industry in 2016. There is room to better align compensation with mission. We view mission as maximizing patient health. The drug companies view mission as maximizing shareholder return. That might work for a company making flat-screen TVs, but it is the wrong measure of success for companies making a vital public good like lifesaving medicines.

The grant of temporary monopolies is a blunt, expensive and inefficient way to induce investment in R&D. Globally, only a small fraction of sales is reinvested in meaningful R&D on medically important products. By delinking R&D incentives from pricing, it is possible to fashion more cost-effective rewards while dramatically expanding access. Cash for successful products that improve health outcomes and reward-sharing of upstream research is better. No other set of reforms can end the conflict between innovation and affordability.

The public needs medical innovation, and research and development is very expensive. The problem with high drug prices is access. People simply cannot afford $10,000 or more for some specialty drugs, and the drug companies have priced the drugs knowing that less than 20 percent of the population will be able to afford them. Lowering the prices to allow everyone access would provide coverage and sufficient revenue to the drug companies. Lower prices with greater [sales] volume would get the same total revenue.

Three solutions that would lower costs and promote innovation: Modernize the drug discovery and development process to keep up with 21st-century science, which would speed approval of new treatments, enhance competition and lower costs. Modify outdated regulations that prevent insurers and biopharmaceutical companies from entering into results-based contracts that can reward outcomes and reduce out-of-pocket costs. Lower patients’ costs by requiring insurance companies to share more of the significant discounts they negotiate with biopharmaceutical companies.