Thursday, September 2, 2010

Why so few drug innovations?

Research and development has an inherent tendency to have a decreasing growth rate. As the pool of things to discover continuously shrinks, it becomes harder to innovate. But we a groundbreaking discovery is made, this opens a lot of new opportunities and one should see a lot of new innovation. But with molecular biology and genomics, the pharmaceutical industry should have seen a burst of innovation, and in particular a jump in innovation productivity. Yet the contrary happened. One argument could be similar to the one that has been made about the productivity slowdown of the seventies, that an groundbreaking innovation like information technology needs time and resources to be understood.

Fabio Pammolli, Massimo Riccaboni and Laura Magazzini claim that this effect is very important. They observe that all the low hanging fruit have been picked in pharmacology and that first have shifted their investment portfolio towards more difficult problems. They suggest that one particular reason to do so is that improving current drugs is not profitable as generics are close substitutes and little rents can be extracted. Thus new classes of molecules are sought.

I would add another development in the field of R&D in general. It has become increasingly difficult and costly to file patents, as the field is littered with "predators" who file vague patents to prevent other from innovating, or to claim royalties. Not only does this increase the cost of innovating, it also increases its uncertainty, as any discovery can be subject to litigation even if it was a genuine discovery. This also encourages laboratories to find new molecules that are much different from existing ones.

1 comment:

Michael Sherrin said...

Patents, I think, are more the cause of the decrease in innovation. Several studies have shown countries with less patent protection on drugs produce more drugs with greater innovation because they must to compete. U.S. drug companies, instead of developing new drugs, can instead find new uses for current drugs allowing them to extend their patents. Or they can and do pay off generics keeping competition out of the market. This is why the research costs of drugs are over inflated, often including marketing budgets with actual research and development.

A congressional study back in the 1960s even found U.S. drug companies to innovate slower and charge more than their European counterparts. We've only made things worse by expanding what is allowed to be patentable. University research, for instance, was not allowed to be patented before the Bayh-Dole Act in 1980. Much of this research is funded by the government and donations, but now gets patented and sold to drug companies who can prevent any one else from competing.

And patents also prevent basic research from happening. From brain research being blocked for three years in court cases (, databases for AIDS research being sued (, to 20+ genes related to cancer being controlled by patent holders who refuse to license or charge too much for access, the costs of simply doing research are becoming astronomical if not impossible.

You are correct that every major breakthrough leads to many smaller breakthroughs. That is because innovation happens by building on the work of others. Patents ban others from building on your work. They add a major time and monetary cost by requiring permission to do research as we are naturally inclined to do. This is why India, after being forced by the U.S. and WIPO to institute drug patents ended up rejecting them after they shrank their thriving and growing drug market. Yes many companies copy the drugs of others, but that's competition. That's what encourages the more innovative drug companies to create NEW drugs. If you want to see innovation in an industry, create more competition. That's how capitalism works.