Most Americans have a sneaking suspicion that pharmaceutical companies are making pretty good money (pdf), but many probably don't understand exactly why. Well, the Government Accountability Office (formerly General Accounting Office - GAO in either case) just released a report (pdf) that explains why.
Because minor changes in existing drugs allow for new patents, giving extended monopolies, drug companies have used very little of their increased R&D budgets (147% from 1993-2004) to develop new drugs. Applications for new molecular entities - the FDA term for significantly new therapeutic drugs - increased only 7% in the same period.
In other words, instead of sparking innovation, drug patent law is doing the reverse - allowing companies to make big money off marginal modifications instead of expanding the realm of medicine. This might be good for Eli Lilly's shareholders, but it doesn't do much for the treatment of antibiotic resistant diseases or some of the world's more prevalent diseases. Time for an amendment to patent law.
2 comments:
I wish I could sympathize. While I do agree that big pharma can be viewed as making minor changes to boost revenues on existing product, those revenues go towards developing new products. Estimates indicate it can cost around $1 billion to develop a new drug. And given that it takes 12 years of a 20 year patent to get a drug to market and start recouping some of the costs, I wouldn't begrudge a company for improving a drug and selling the improvement.
As for encouraging innovation, perhaps the federal government should increase R&D funding. Because of the cost of new drug development, pharam companies are negatively incentivized to develop new drugs, particuarly if the market is uncertain. See Merck and Vioxx.
A drug company will choose to commit its resources among short-term projects with probably high returns (modifying existing drugs) and long-term projects with less certain returns (developing new drugs).
If a company is weighted too heavily towards the short-term, that company may soon find itself with nothing in the pipeline, having to lay off workers and explain to shareholders what happened to all those profits. Some managers ought to be held responsible for making poor decisions. On the other hand, a company with a healthy balance might end up in the same place because of poor luck or other reasons. Whatever the case, it seems that this company might be called Pfizer.
The industry argues, for example, that low development rates are partially due to increased complexity of the diseases with which we are currently faced. Perhaps all the easy diseases have already been cured. Or maybe this and others are just excuses.
If Pfizer misallocated resources and is now paying for it, that is good. If most companies are striking a balance between modifying existing drugs and developing brand new molecules, and some of the cheap revenue from the old drugs finances the new, that may also be good.
It isn't clear to me that changing patent law will result in more new drugs. Companies would direct their resources into new drugs, sure. But to the extent that old drugs are financing new drugs, the resources may be less.
It is a problem of aligning the incentives of the drug companies with the good outcome for society. Regardless of the question of regulation, increased efficiency in the approval process would help everyone.
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