[leonth]

> One obvious solution would be a government program whose mission is to identify promising treatments for which private incentives don't line up, and shepherd them through the approval process by funding clinical trials and so on

You already have this. It's called Orphan Drugs in the US. http://en.wikipedia.org/wiki/Orphan_drug

> a free-market variant, in which the government just auctions off US patent rights for foreign drugs

This will probably work. But once the barrier is too low, a lot of "useless" drugs will show up (i.e. providing more choices to prescribers but in reality does not really give much benefit) - and you need to fund those too using the taxpayers' money.

[davmre]

Cool, I wasn't familiar with the Orphan Drug program. From the Wiki page it looks like it's focused on development of new drugs for rare diseases, for which the market is inherently small and thus impossible to do large clinical trials, etc. That's similar to but not quite the same as the problem here, where a drug already exists and the market is potentially quite large, but the lack of patent protection prevents any one company from funding its approval. Do you know if the Orphan Drug Act specifically designates some government body with the mandate and funding to study and approve pre-existing foreign drugs? If not, maybe that could be a useful extension.

[leonth]

I see, it is indeed quite different. I'm not sure what the Orphan Drug Act specifically says though.

Actually if the market is potentially quite large, big pharmas should already be researching it. The problematic ones are those that are in-between orphan drug and market-quite-large drug. The society probably needs less of these drugs (there should be alternatives at the other ends), but if it's still needed, maybe expanding the scope of the Orphan Drug Act can be a good solution.