John Edwards' Not-So-Bad Plan

My Foolish colleague Charly Travers thinks John Edwards' plan to take away drug patents in exchange for a prize is crazy. Maybe all the years I spent in academia have made me too much of an idealist, but I think the plan just might work.

Both Charly and I would agree that the U.S. has the best drug development system in the world because there's a prize at the end of the tunnel. If we converted to a managed-care system like the ones in Europe, innovation would be stifled because the revenues from marketed drugs wouldn't be enough to pay for all the drugs that fail in the laboratory or clinic. Pharmaceutical companies such as Bristol-Myers Squibb (NYSE: BMY) or Schering-Plough (NYSE: SGP) would just close up shop when their patents ran out, and development-stage companies like Exelixis  (Nasdaq: EXEL) would never get off the ground.

The prize at the end of the tunnel just needs to be big enough. The National Institutes of Health (NIH) spends most of its $28 billion annual budget on basic scientific research, which serves as the starting point for most drug development. Unlike Hillary Clinton's plan to use the basic research spending as a justification for lowering drug costs, Edwards at least seems to get the idea that we need to throw more government money at the problem. I'll leave where to find that money up to the politicians, but the resulting reduced medical costs for Medicare could be a start.

As for how to fix the Food and Drug Administration, I think the solution is pretty clear after listening to GlaxoSmithKline's (NYSE: GSK) CEO note that four out of five drugs are getting approvable letters instead of being approved for marketing. It sounds to me like the FDA and drug developers are communicating via a homemade string-can telephone. Drug companies are submitting applications -- sometimes more than once, as is the case for Encysive Pharmaceuticals (Nasdaq: ENCY) -- that clearly aren't what the agency wants.

The FDA needs to set clear goals for what will get an approval and what won't. Sure, that will require more staff to communicate with companies while they set up clinical trials, but I'm sure drug companies would be more than happy to increase their PDUFA fees if it saved them months of waiting on an FDA decision.

The system is clearly broken and needs to be fixed. If any politician wants to steal my solution, it's free for the taking. Just try to work Foolish -- with a big F -- somewhere into your inauguration speech.

For another take on Edwards' plan, see "John Edwards, Frozen Caveman Lawyer."