“A government-run prize model would upend America’s world-leading IP and regulatory incentive structure, spelling disaster for patients who depend on an innovative and robust biopharmaceutical sector.” – PhRMA
On Thursday morning, the U.S. Senate Committee on Health, Education, Labor & Pensions (HELP) held a legislative markup hearing to debate amendments to S. 2333, the Pandemic and All-Hazards Preparedness and Response Act (PAHPARA), the reauthorization bill to extend the Pandemic and All-Hazards Preparedness Act (PAHPA). If enacted as currently drafted, PAHPARA would direct federal agencies to study alternative models for funding biomedical research, including prize systems that have been routinely rejected as a viable model by pro-innovation advocates.
National Academies, HHS to Collaborate on Innovation Prizes for Drug Development
First enacted in 2006, PAHPA took on a renewed focus during the COVID-19 pandemic when authorities granted and programs established by that law drove much of the federal government’s response to the public health crisis. This September marks the end of PAHPA’s current authorization cycle, by which time Congress will try to extend the legislative package for another five years.
The Senate HELP Committee leadership issued a discussion draft of the 2023 PAHPA reauthorization bill in early July. Since that early draft, the current version of the bill includes Section 308, which directs the Secretary of Health and Human Services (HHS) to collaborate with the National Academies of Sciences, Engineering, and Medicine on a study to examine alternative models for funding biomedical innovation “that delink research and development costs from the prices of drugs, including the progressive replacement of patents and regulatory exclusivities on new drugs.” Specifically, the bill contemplates alternative models based on increased federal support for research and innovation prizes to reward drug development or milestone achievements.
Section 308 of PAHPARA would set aside $3 million in fiscal year 2024 to conduct a two-year study on alternative models for funding biomedical research and innovation. The study would explore dollar amounts for innovation prizes at different stages of research and development for different classes of drugs, the effectiveness of prize models in stimulating innovation when compared to patents, and the anticipated impacts of alternative models on drug development rates, disease burden and federal spending. The study would also report on strategies for a phased transition toward implementing an alternative funding model over time. Section 308 requires the National Academies to hold two public listening sessions to solicit public feedback during the two-year study period.
Increased Federal Bureaucracy Is Not The Answer For Lowering Drug Prices
Claims that drug prices can be reduced by delinking drug development from traditional R&D-to-commercialization pathways have been debunked in the past. In February 2020, weeks before the COVID-19 pandemic upended global society, the Information Technology & Innovation Foundation (ITIF) published a white paper pegging the taxpayer cost of a prize system that could adequately delink private investment from drug R&D at $180 billion per year. Further, ITIF noted that prize models are often improperly funded as it is hard to measure the value of new medicines until they are created.
Drug R&D industry organization Pharmaceutical Research and Manufacturers of America (PhRMA) issued a statement in the leadup to the Senate HELP Committee’s markup session voicing concerns over the impact of Section 308 on drug innovation. In an email addressed by Megan Van Etten, PhRMA’s Deputy VP for Public Affairs, the industry organization decried federally-funded prize systems as a poor substitute for private sector investment:
“A winner-takes-all prize fails to recognize the role IP has played in incentivizing and protecting innovation since America’s inception. Patents and regulatory incentives are foundational to advances in medicine that save and improve lives… A government-run prize model would upend America’s world-leading IP and regulatory incentive structure, spelling disaster for patients who depend on an innovative and robust biopharmaceutical sector.”
Expansions to the government’s role in directing drug development in ways that limit private investment can create bureaucratic barriers between patients and lifesaving treatments, a theme that has resounded throughout the COVID-19 pandemic. The proposed waiver to international IP obligations under the World Trade Organization’s (WTO) TRIPS Agreement for COVID-19 medicines and diagnostics was repeatedly met with backlash by drug innovation advocates who pointed out that no data exists to support the idea that patents are a barrier to medicine access. Indeed, Former USPTO Director Andrei Iancu publicly voiced his concerns in January 2022 that such an IP rights waiver would “help kill more people, to be blunt–than save people.” PhRMA argues that a transition to an innovation prize model and away from patents would similarly burden patients by slowing drug development, especially given the price-setting controls enacted by the recently passed Inflation Reduction Act.
PAHPARA Reported Favorably Out of Committee Without Discussion on Section 308
At Wednesday morning’s markup session, the Senate HELP Committee mainly debated a series of amendments and did not discuss the Section 308 provisions on the innovation prize study. During his opening remarks, Committee Chair Sen. Bernie Sanders (I-VT) briefly referenced the study, calling innovation prizes “a transformative new way of paying for the development of prescription drugs… without the burdens of monopolies and high prices.” Following debate on amendments, the Senate HELP Committee favorably reported PAHPA out of committee by a 17-3 vote.