Solving the Problem of New Uses

One of the most dramatic public-policy failures in biomedical research is the lack of incentives for industry to develop new therapeutic uses (“indications”) for existing drugs once generics are available. Policymakers and commentators are well aware of this “problem of new uses,” but fail to appreciate its magnitude. Over the past decade, this gap in the incentives for pharmaceutical R&D has become one of the greatest barriers to medical progress. Recent technological advances have allowed researchers to identify hundreds of potential new indications for older drugs that could address critical unmet medical needs. And researchers are poised to discover hundreds more. Developing new indications for existing drugs is much faster, cheaper, and less risky than developing new drugs, and therefore offers the single most promising avenue for delivering new medical treatments to the public. However, pharmaceutical companies invariably lose interest in developing new uses for existing drugs when patients have access to low-cost generics. This article explores the nature and source of this gap in the incentives for developing new medical treatments, showing that it ultimately stems from a simple information problem. At present, the government encourages drug development by granting firms temporary monopoly rights that block generic manufacturers from making or selling imitations of their drugs. The government also makes available an alternative type of monopoly protection for new indications that applies to the act of taking or administering a drug for a new therapeutic use. The latter monopoly rights could provide the appropriate incentives for developing new uses of existing drugs. However, pharmaceutical companies cannot enforce these rights without knowing when physicians prescribe the drug for the patented indication as opposed to some other use. If the government established an infrastructure for pharmaceutical companies to monitor the prescribed indications when pharmacists fill a prescription, those firms would possess the information necessary to enforce patents on new indications, thereby solving the problem of new uses. This article argues that the government could easily create such an infrastructure through the expanding use of eprescribing software and electronic medical records

Truth in Government: Beyond the Tax Expenditure Budget

Recently, the tax expenditure budget has come under renewed attack. Some argue that the conceptual and implementational flaws in the tax expenditure budget justify discontinuing its publication. This Article argues that-if improving the utility of information distributed about the direction and function of government is a desired end-one must focus on the interaction between the various information sources rather than the merits or demerits of any particular source of information. In arguing for the publication of more, rather than less information, this Article points out the generality of the supposedly fatal flaws in the tax expenditure budget: all the sources of information we have about government spending suffer from problems similar if not identical to those identified in the tax expenditure budget, e.g. the absence of an agreed-upon baseline of a normal tax system against which to measure tax expenditures. Rather than discontinuing publication of the tax expenditure budget, this Article argues that it should be supplemented with additional, albeit also imperfect information. In particular, this Article suggests that a cost benefit schedule and contact audits should accompany the tax expenditure budget. Although like the tax expenditure budget the information provided through these sources will not be perfect, it will promote the broader goals of transparency, voter awareness and government accountability

Unpatentable Drugs and the Standards of Patentability

The role of the patent system in promoting pharmaceutical innovation is widely seen as a tremendous success story. This view overlooks a serious shortcoming in the drug patent system: the standards by which drugs are deemed unpatentable under the novelty and non-obviousness requirement bear little relationship to the social value of those drugs or the need for a patent to motivate their development. If the idea for a drug is not novel or is obvious, perhaps because it was disclosed in an earlier publication or made to look obvious by recent scientific advances, then it cannot be patented. Yet the mere idea for a drug alone is generally of little value to the public. Without clinical trials proving the drug's safety and efficacy, a prerequisite for FDA approval and acceptance by the medical community, it is unlikely to benefit the public. Given the immense investment needed to fund clinical trials on drugs, and the ability of generic manufacturers to rely on those tests to secure regulatory approval for their own products, pharmaceutical companies are rarely willing to develop a drug without patent protection. The novelty and non-obviousness requirements make no concession for the development costs of inventions, and thus withhold patents from drugs that are unlikely to reach the public without that protection. This gap in the patent system for drugs has created a pervasive problem in the pharmaceutical industry, causing firms to regularly screen through their drugs in R&D and discard ones with weak patent protection. The potential harm to the public from the loss of these drugs is likely significant. Congress can easily avoid this problem by ensuring that the successful completion of the FDA's rigorous clinical trial process is rewarded with a lengthy exclusivity period enforced by the FDA

Judge Wood Meets International Tax

There is always a danger in having courts of general jurisdiction rule on issues involving the application of technical pieces of specialized legislation. Judges in these courts generally lack the background necessary to understand the interactions between the particular issue(s) under scrutiny and the larger legislative or regulatory picture. And unfortunately, the parties, usually operating under strict space constraints in their briefs, often fail to educate the judges about that larger picture. That is the situation Judge Diane Wood found herself in twenty-two years ago when it fell to her to write the opinion in Amoco Corp v Commissioner of Internal Revenue.1 The question raised in the case was whether Amoco Corporation could claim foreign tax credits for taxes it “paid”2 to a corporation owned and controlled by the Egyptian government,3 the Egyptian General Petroleum Corporation (EGPC). Although EGPC passed Amoco Egypt Oil Company’s (Amoco Egypt) tax payment on to the Egyptian treasury, EGPC then claimed Amoco Egypt’s taxes as a credit against its own Egyptian income tax liability.4 The Internal Revenue Service (IRS) took the position that this tax credit constituted an “indirect subsidy”5 to Amoco Egypt, negating Amoco Egypt’s original tax payment and its associated (US) foreign tax credits.6 As a technical matter, the case turned on the question whether EGPC should be treated “as part of the Egyptian government” since “it made no sense to say that the Egyptian government was providing a subsidy to itself.”7 Although Judge Wood did an admirable job of confronting this narrow technical question, the opinion gives no hint that she understood the larger context surrounding the case. If she had, she likely would have found it far more interesting.

Public-Private Partnerships and Termination for Convenience Clauses: Time for a Mandate

For better or worse, and for richer or poorer, the line between government and private provision of goods and services is disappearing