Over the last five years, eight new drugs have been approved to treat lung cancer, the leading cause of US cancer deaths. All eight drugs targeted patients with the most advanced form of lung cancer, and were approved on the basis of evidence that the drugs generated incremental improvements in survival. A well-known example is Genentech’s drug Avastin, which was estimated to extend the life of late-stage lung cancer patients from 10.3 months to 12.3 months. In contrast, no drug has ever been approved to prevent lung cancer, and only six drugs have ever been approved to prevent any type of cancer.

That disturbing oddity opens Eric Budish, Benjamin N. Roin, and Heidi Williams’s American Economic Review piece, Do Firms Underinvest in Long-Term Research? Evidence from Cancer Clinical Trials, which Austin Frakt wrote about in the NY Times yesterday.

The authors’ explanation for it is a particular species of corporate short-termism, in interaction with the drug-approval process and patent law. The Food and Drug Administration typically will not approve a new cancer drug without clinical trials showing that the drug improves survival. It’s much quicker and cheaper to show that a late-stage cancer drug can extend a patient’s life by a few months than to show that a cancer-prevention drug can save the lives of people who don’t have cancer in the first place. Corporate managers tend to overvalue short-term profit over long-term profit, so they tend to underinvest in prevention. Making matters worse, the patent that the drug company may win has a fixed term that usually begins well before the drug is commercialized. The longer the trials take, the less time remains on the patent. “Corporate short-termism and fixed patent terms reinforce each other in distorting private research dollars away from long-term investment.”

Before getting to solutions, I want to point out the enormity of this issue. Cancer prevention is big enough on its own, of course, but this isn’t just about cancer, or even just about drugs. There’s every reason to believe that essentially the same problem affects virtually every area of product development. Not every product is subject to a government approval process, and not every product is patentable. Every new product takes time to develop, though, and for every product there’s some period during which the original maker has a likely advantage over competitors. Regardless of the FDA and the PTO, firms prefer to develop products with a short time to market and a long period of market advantage. Neither of those factors correlates with social value.

The authors offer three possible solutions, of which the Times piece mentions only two. The first is to approve drugs that haven’t been shown to improve survival, so long as they produce some other outcome that has been tied to survival. Such “surrogate endpoints” are already considered sufficient in some circumstances—blood cell counts as surrogates for leukemias, for example. Relying on them is controversial, though, because it increases the risk of approving drugs that don’t end up doing anything that really matters.

The second is changing the patent law to guarantee protection for a minimum fixed term that begins when a drug is commercialized. A provision of Obamacare has already done this for biological drugs. This solution, though, addresses only the patent issue, not managers’ tendency to overvalue short-term profits, and the study doesn’t reveal the relative importance of the two factors. There’s also “remarkably little evidence that stronger patent protection induces more R&D investments.” As a result, the authors say their “analysis of patent reforms as a policy lever should be considered suggestive rather than conclusive.”

The third solution, not mentioned by the Times, is the most direct and the most relevant to Democratism: subsidize R&D for cancer prevention drugs. While either of the other two solutions might help, subsidies is the only one that goes directly to the immediate cause of the problem—underinvestment—without skipping the proof that the drugs actually improve survival.

“Subsidize” probably sounds like a choice between a tax hike and more government debt, but it doesn’t have to be. It only has to be a shift in resources, from the overvalued short-term to the undervalued long-term—or the overvalued anything to the undervalued anything else. We can decide together what’s over- and undervalued and by how much. If we decide to subsidize research in cancer prevention, for example, we can take the investment from research in late-stage cancer treatment. On the other hand, we don’t have to. Personally, I’d prefer to take it from, say, activities that emit greenhouse gases, or maybe from high-speed financial transactions. In any case, while my exact preferences might not win the day, I’m sure we can find something or another worth giving up for the sake of curing cancer.

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