Last year I attended a few lectures and read news reports about the pharmaceutical business where drug researchers and clinicians spoke about how the allocation of money was disproportionally being spent on life-style drugs and existing (often unique) drugs were being discontinued. This got me thinking about how we could continue to allow pharmaceutical companies to make gobs of money (I don't object to profiting from a great product) and also allow clinicians to depend on a consistent supply of drugs. We need a segmenting and deregulation like what was done with electric utilities in the mid-1990s.
The electric utilities in the mid-1990's were split into three segments: generation, transmission, and local distribution. While the customer does not have a choice of local distribution and transmission they should have a choice of generation. Local generation and transmission continued to be regulated. Generation was deregulated to enable competition. This change was fundamental in the motivation to build wind farms, solar farms, etc.
The pharmaceutical companies need to be split into three segments: research and development (R&D), manufacturing, and distribution. No one company can be in more than one segment. Manufacturing and distribution are typically low-risk, low-margin businesses. They are also critical to continuing care and so will be regulated. The R&D segment is typically a high-risk, high-margin business. This will be unregulated (well, more like less regulated). Within R&D there are two means of funding. The first is the self-funding pharmaceutical industry we have today. The second kind of R&D companies are the startups financed by venture capital.
Given these segments how does the money flow to encourage innovation and discourage abandonment of established, low-margin markets. Firstly, by separating manufacturing and distribution these businesses can continue to exist and be profitable as they do not need to directly bare the costs of R&D. People, world over, continue to get sick with the same diseases!
How is R&D paid for? R&D works within a venture capitol environment. Money comes from outside the pharmaceutical industry and money comes from inside the pharmaceutical industry. The money from within the industry comes from the sale of drugs to manufactures and a royalty on retail sales. This money does not go directly to the R&D businesses. This money goes into a venture capital fund. This is one of the many funds that R&D businesses can pitch a therapy to. I do not know how the internal fund is managed. This might be a kind of utility with public oversight.
This segmentation and organization allows for the continuation of the high-risk and high-reward therapy R&D but takes out of R&D's control the manufacturing and distribution. A win for all interested parties -- and we are all interested parties in health.