Drugs often have uses beyond their original intended purposes. For example, semaglutide (i.e., the active ingredient in Ozempic and Wegovy) was originally approved for use by people with diabetes and, later, for long-term weight management. However, due to a lack of financial incentives, new uses often go under-explored for drugs whose patents have expired. Once a drug’s patent expires, other companies can enter the market to produce “generic drugs” – i.e., off-brand, identical versions of the previously patent-protected drug. This leads to decreased drug prices, which diminishes the incentive to invest in expensive research and development (“R&D”) necessary for discovering new uses. 

While current government and philanthropic efforts to repurpose generic drugs have had some success – such as the government-funded trials that led to dexamethasone’s inclusion on COVID-19 treatment guidelines – these efforts have had limitations. A range of innovative funding mechanisms can help complement current funding efforts and lead to the discovery of affordable treatment options, leaving us better equipped to address health needs. 

Current funding for repurposing generic drugs

While current government and philanthropic efforts to repurpose generic drugs have had some success, they have limitations:

1. The current funding levels are relatively low: The current funding totals are likely insufficient to explore the vast range of potential repurposing opportunities. 
2. The current approach picks winners: The current approach relies on a “push funding” model, which involves directly allocating funds to a specific group (e.g., via research grants). Government and philanthropic organizations often lack the information necessary to know which research groups are best suited to research specific drugs. This matters because firms often have private information about potential new uses for specific generic drugs but opt to “shelve” the drugs – they decide to not fully investigate their uses through clinical trials due to a lack of financial incentive. Push funding does not ensure that organizations with the most relevant expertise, such as private information about potential uses, receive funding for research. 
3. The current approach primarily funds academic institutions and does not lead to regulatory approval: Much of the push funding currently awarded goes to academic institutions. While academic institutions are often at the forefront of research, they may lack the resources necessary to gain regulatory approval for new uses. (This is partially because gaining regulatory approval is costly. Even for repurposed drugs, regulatory trials alone may cost ~$40m.)

The opportunity for market shaping

In this context, pull funding mechanisms offer a promising complement to existing push funding. Pull funding does not pick winners and, instead, can reward firms that discover new uses first. It, therefore, incentivizes the firms best placed to research new uses for a drug to do so (e.g., firms with private information about potential uses). 

One reason market shaping for repurposing generic drugs may be tractable is because public and private healthcare payers – such as the Center for Medicare and Medicaid Services, Veterans Health Administration, and Blue Cross Blue Shield – have an incentive to pay for the discovery of treatments that can help reduce costs. These organizations could, perhaps, co-sponsor a repurposing generic drugs pull funding mechanism. 

Different pull funding strategies are required to address different health condition categories, such as common diseases in high-income countries, neglected tropical diseases (“NTDs”), pandemics and public health threats, and rare diseases. MSA is collaborating with the Duke-Margolis Institute for Health Policy to design pull mechanisms to incentivize innovation in repurposing generic drugs for common diseases in high-income countries and NTDs in low-income countries.

There are several key questions to consider when designing a pull mechanism for repurposing generic drugs: 

1. What should the mechanism reward? Should the mechanism reward work on specific diseases or be disease agnostic? Furthermore, how can the mechanism differentiate between “low-hanging fruit” and harder-to-reach opportunities? “Low-hanging fruit” describes well-known alternative uses for generics such as those regularly prescribed off-label (i.e., off-label prescriptions refer to prescriptions for drugs that lack regulatory approval for the prescribed use). “Harder-to-reach opportunities” describes unexplored new uses for generic drugs. Harder-to-reach opportunities will be more expensive to incentivize than low-hanging fruit. Therefore, a mechanism that only incentivizes harder-to-reach opportunities will overpay for low-hanging fruit and vice versa. Rewarding low-hanging fruit, however, may not result in much additional benefit for patients or payers. 

2. How should payments be made? One option is to subsidize each unit of the drug sold, as is done with advance market commitments (“AMCs”). This incentivizes pharmaceutical firms to quickly discover new uses, gain approval, and distribute their product. This also provides a market test to ensure drugs meet the needs of patients and healthcare systems. Paying for each use of a drug for a particular indication would require access to data that captures the drug prescribed and the condition it was prescribed for. In the United States, private firms compile this data from various stakeholders (e.g., health providers, insurance companies, etc.). Preliminary discussions with firms suggest that sufficient data could be compiled to run a pull mechanism. However, efforts would need to be taken to ensure that actors do not misreport data to “game” the mechanism. Alternatively, lump-sum payments, such as prizes, offer a one-time reward for discovering a new use. Lump-sum payments, such as prizes, do not create incentives to quickly distribute the repurposed drug but have the benefit of not requiring tracking of use. This approach may be particularly useful for NTDs, where tracking use is challenging in low- and middle-income countries.

3. Should regulatory approval be a requirement? While any pull funding mechanism used in this context would require safety and efficacy data from clinical trials, mandating regulatory approval sets a particularly high bar. Clinical trials necessary to receive regulatory approval can cost hundreds of millions of dollars. In the US, doctors do not need regulatory approval to prescribe drugs, which is why they make frequent use of “off-label” prescriptions. However, there are reasons that regulatory approval should potentially be a requirement: research suggests that regulatory approval is useful for ensuring safety and encouraging the adoption of the drug. Nonetheless, regulatory approval for the new indication may be less useful for repurposing in the context of NTDs where meeting the requirements for inclusion on WHO treatment guidelines may be adequate for ensuring safety and adoption.]
4. How can value be incorporated into compensation? Funders can use assessments of cost savings and health improvements (e.g., DALYs, lives saved) to create larger rewards for higher-value innovations.

Conclusion

Addressing market failures through strategic market shaping mechanisms, such as AMCs and prizes, can unlock the latent potential of generic drugs. By incentivizing R&D efforts, these mechanisms promote innovation and help us better address health needs. 

Duke-Margolis is exploring these issues as part of their ongoing work in Phase II of our Innovation Challenge. The team is led by Beth Boyer, Research Associate. 

Update: September 25, 2024

Duke-Margolis was a finalist in MSA’s Innovation Challenge and was awarded $155,000 for their proposal to create pull mechanisms to repurposing generic drugs for common and neglected diseases. This proposal was one of three finalists selected from an initial pool of 183 teams after rigorous evaluation by the MSA team and a panel of expert judges. To learn more about the innovative proposal, you can watch Beth’s pitch and explore the policy memos: common diseases, neglected tropical diseases.

Want to get in touch with MSA about our work in this area? Please reach out to [email protected].

Learn more

Duke-Margolis – Drug Repurposing for Pandemic Innovation

University of Oxford Government Outcomes Lab – Using Pay-for-Success contracts and value-based pricing to incentivise discovery of new uses for off-patent medicines

Sahragardijoonegani, et al., 2021 – Repurposing existing drugs for new uses: a cohort study of the frequency of FDA-granted new indication exclusivities since 1997