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Building a NASA for Prescription Drugs

A bold solution to America's soaring drug prices

Phil Walter/Getty

One in every five Americans skips prescription doses because they can’t afford them. Drug prices spike overnight, and people with diabetes have had to turn to GoFundMe by the thousands, begging for the insulin they need to survive. Meanwhile, pharmaceutical companies are raking in profits at more than double the rate of other Fortune 500 companies. Even President Donald Trump has criticized the industry, saying in his first press conference after the 2016 election that Big Pharma is “getting away with murder.”

Yet the basic system that keeps drug prices and profits so high remains undisturbed. Trump’s suggestions for reforms—reducing some out-of-pocket costs for seniors and taking small steps toward negotiating drug prices directly with their manufacturers—have, at least thus far, been timid. (On Friday, he’s expected to deliver a speech laying out those proposals in more detail.) More ambitious congressional bills have not moved forward. And while some state legislatures have been making progress, a recent U.S. appellate court decision struck down Maryland’s new statute against prescription price-gouging, adding fuel to the pharmaceutical industry’s argument that only the federal government has the power to regulate drug prices meaningfully.

For Americans struggling to pay for their prescriptions, the prospects can seem bleak. But the foundation for a dramatic and permanent lowering of drug pricing is already in place: The federal government can and should assert control over the tasks of developing and distributing the medicines Americans rely on every day. That may sound like a revolutionary transition, but it would be far simpler than you may think. The United States already has a model: the defense and space industries. If the government emulated how those are structured, it would be able to deploy taxpayer dollars to ensure affordable medicines while eliminating the breathtaking inefficiencies in the current system. And for Democrats, who are currently looking at ways to fix America’s broken healthcare system, from Medicare for All to individual mandates at the state level, a NASA for drug research is worth considering.

Broadly speaking, a prescription drug in the United States goes through three main stages of development: On the front end, researchers make a scientific breakthrough in their labs, discovering the building blocks of a new drug. Then it goes through the second stage, which includes the often-costly process of clinical research and trials. Last, once the FDA has reviewed and approved it, the drug goes on the mass market, sold at drugstores and doctor’s offices.

The United States is already involved in the earliest stages of drug development. It’s the top funder of basic science research in this country through the National Institutes of Health, which has an annual budget of $37 billion, more than what the federal government pays for Head Start and Pell Grants combined. Most agree that this is money well spent: Every one of the 210 new drugs approved between 2006 and 2010 trace their origins back to government funding.

The government is also involved in the third stage, as a top purchaser of medicines. Through Medicare, Medicaid, the Department of Veterans Affairs, and other programs, the federal government pays for $300 billion worth of prescription drugs each year.

Where the system runs into trouble is in the middle of the process, when the government hands over a glittering prize: the multi-decade patents that give private companies a monopoly on life-essential products. Through a mechanism established by the Bayh-Dole Act of 1980, private companies are allowed to claim patents on promising compounds discovered with government funding—and that means exclusive rights to manufacture and sell the resulting drug for a period of 20 years and often longer.

This isn’t just an outdated model; it’s also deeply inefficient. Companies can price medicines at hundreds of times what it costs to make them (it’s how a hepatitis C medicine could cost $1,000 for each pill that is manufactured for a few dollars), and with the government providing a guaranteed market for the drugs, companies like Gilead and Pfizer have had years where their reported profit margins exceeded a staggering 40 percent. All of the Big Pharma companies average between 15 and 20 percent profit each year. Most Fortune 500 companies are happy to claim half of that. There is “absolutely no reason why the taxpayer should be forced to subsidize a private monopoly and have to pay twice: first for the research and development and then through monopoly prices,” Senator Russell Long insisted when Bayh-Dole was passed in 1980.

There is a better approach, both for spurring important research and keeping medicines costs low. Economists like Dean Baker of the Center for Economic Policy and Research and Amitabh Chandra of the Harvard Kennedy School have given thought to what this new system would look like. Chandra envisions a “NASA for drug development” where private companies are contracted to do federal work, but the government does not hand over monopoly patent rights. Eli Lilly and Pfizer would be contracted to conduct clinical trials, or even manufacture and distribute medicine, in the same way that Lockheed Martin and Northrop Grumman are contracted to design and build supersonic aircraft or space vehicles. Baker describes a similar approach modeled on the U.S. defense industry. The Department of Defense spends $300 billion each year on government contracts for private companies like Raytheon and Boeing, which make a healthy profit building high-tech missiles and aircraft, even though they’re not routinely handed massive windfall-producing monopolies.

As longtime affordable medicines advocate James Love of Knowledge Ecology International points out, such ideas for drug development aren’t proposing anything the government doesn’t already do. The NIH, the Biomedical Advanced Research and Development Authority, and the National Cancer Institute already fund the full research process for some medicines developed in the United States today. “Government funding for every stage of drug development is done every day now, in a consequential but limited way,” Love says. And, even after Bayh-Dole was passed, governments have continued to fund the early, riskiest stages of drug development for cancer, HIV, and mental health drugs, as well as some vaccines. The Pentagon and NASA models would simply expand on what the government already does.

Of course, this can’t happen instantaneously. If the United States were to move towards a NASA system, the federal government would have to find up to $75 billion in its budget to replace what private industry spends on R&D. But that’s not an insurmountable obstacle. There should be plenty of money available. Baker and other economists calculate that a NASA for drug development, which would eliminate patents and the price markups for prescription drugs that come with them, would save Americans hundreds of billions of dollars every year thanks to drugs being generic-level cheap from day one. The savings to government spending alone would be more than enough to pay for every penny of the $75 billion that the private pharma industry claims it spends on R&D—and replace it with research that is more widely shared and targeted more at public health than at quarterly profits. In this alternate universe, scientists and labs could switch their focus away from developing yet another iteration of an erectile dysfunction drug towards tackling challenges like tuberculosis. 

It won’t be easy to convince legislators to overhaul the monopoly model Big Pharma has come to rely on. The industry is one of the top funders of lobbying and campaign contributions, and its trade organization responded to popular frustration at drug pricing in the first quarter of this year by spending a record $10 million on lobbying, a sum that does not include the millions spent by individual companies. It’s why the National Association of Medicaid Directors calls the industry “the third rail of politics—and if you go against them they will cut you off at the knees.”

But the current system seems to be losing support from some of the industry’s longtime allies. Like Trump, Republicans at both the state and national levels are openly grumbling about the toll pharma profits are taking on the overall economy and federal and state government budgets. For example, Utah state representative Norman Thurston, a Republican, is sponsoring legislation to allow his state to import lower-cost medicines from outside the United States, an idea that has significant GOP support in the U.S. Senate. “We are their biggest customer, so where is our volume discount?” Thurston said. “This is a violation of basic free-market principles.”

Republicans aren’t the only ones with reform proposals. In addition to smaller-step ideas like allowing Medicare to negotiate drug prices, Love and other experts have helped Senator Bernie Sanders develop legislation that retains a role for private companies in drug development, but would replace the incentive of patent monopolies with government prize funds to induce the companies to conduct needed research. It is an approach that shares the “NASA for Drug Development” theme of eliminating the inefficiencies that come with privately held patent monopolies, and several other senators have agreed it should be studied further.

A NASA for drug development is a better way to do research, and a far better way to ensure affordable medicines. And it responds to the rising public demand for significant change: Some polling shows that reducing drug prices is Americans’ top political priority this fall. Especially for Democrats, whose hopes for a return to a majority in Washington are framed in significant part by proposals for bold healthcare reform, a NASA for drug development should be front and center.