Government Response to Pharma in Decline - Editorial

We know individuals and firms who suck at the government teat are infinitely creative at gaming any regulatory regime. So we design our governmental approach employing the same behavior fundamentals+ we advocate for World Class R&D: competition, legalism+, other people’s money+, etc. The work required to design and sell this regime to the voting public is enormous, and will not be addressed in this article. Instead we provide an overview of what governments should and shouldn’t do, and leave the details to other more audacious strategists.

The key question to be answered is how government policy can unfreeze the money in today’s pharmaceutical industry so it can move into new industries. We’re witnessing the decline of an industry that was for decades the source of great jobs, life-enhancing products and economic growth. What government policies can allow current money to be extracted from today’s operations and redirected to the next industrial base?


What To Avoid

Luddites will ask for protections for the existing industry, for patent extensions on existing products, or for regulators to give a ‘stamp of approval’ to dubious biomarkers for diseases. You won’t unfreeze existing pharmaceutical R&D money by feeding the addiction. The Bush administration prescription health plan "Medicare D" was one of the worst pieces of legislation that could have been enacted by any government. Drugs promising three months of statistical increase in lifespan for terminal cancer patients in exchange for two years of debilitating side effects would never have made it onto the marketplace were it not for their purchase with tax dollars. The cost-benefit ($200-300K per year) just wouldn’t fly with most rational economic consumers. Instead, government policies should be designed to discourage business-as-usual approaches prevalent in today’s R&D operations.

You don’t do this by providing tax breaks to companies who buy up smaller firms in the hope of “purchasing innovation”. Lacking new organizational forms, this wastes both the money used in the purchase and the innovation. This also encourages ‘dumb’ Venture money to feed the beast.

We had to place many hundreds of millions of dollars of pension fund money. We performed due diligence on many biotech and life science companies. I think we were able to weed out the worst. In the end we placed the money with individuals with whom we had done business in the past. It was all about the relationships. Technical Adviser to a Major Venture Capital firm (2010). Personal communication

Venture capitalists are keen on having the firms in which they invest sell their ‘crown jewels’ to larger firms before the flaws in the research become evident.

What to Promote

Here’s a simple listing of areas where governments can be helpful:

  • Innovation in patent law – find ways to protect the ‘right to patent’ for R&D work-in-process, versus actually filing a patent on the finished R&D product and starting the patent clock. This allows R&D departments to not be ‘rushed’ in a race against time.
  • Innovation in regulatory regimes – find ways to certify firms (and individuals within firms). Give them ‘a kitchen pass’ so-to-speak on regulatory approvals based on their certification. If the FDA must deal with the good, the bad and the ugly, then let’s identify the good and give them some leeway. Move away from one-size-fits-all+ thinking in the regulatory regime.
  • Innovation in science funding – spend federal science dollars on Science Platforms having Venture backing. Government funding of science should only proceed when private money is willing to participate (with limited exceptions for some spheres of basic research).
  • Innovation in investment law – further liberalize the ability of pension funds, endowments, and other restricted entities to invest into ‘certified’ venture-backed firms.

This is an illustrative list, to show governments can and should do more to encourage new approaches to industrial R&D, and to discourage unproductive R&D practices. Since Federal money tends to be dumb money (i.e., allocated by peer review panels+, based on notions of egalitarianism, sponsoring Gaia-centric theologies) I summarize the key principle for any government-financed initiative:

Commercialization+ is still the Achilles' heel for industrial R&D. Laboratory breakthroughs are a dime-a-dozen in comparison with commercial exploitation. Government dollars poured into basic research are just as damaging (feeding the beast) as are industry dollars if they do not take into account what is needed to convert basic research into commercial products. – WCRD Admin

Use this principle as a touchstone for any future government regulations.


Editor's Picks for January, 2011

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