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RESEARCH AND DEVELOPMENT IN THE PHARMACEUTICAL INDUSTRY
The product development process in the health and pharmaceutical industries is complicated, time-consuming, and expensive. Research and development expenditures have an impact on policy choices and judgments on how to effectively stimulate innovation to satisfy health demands and make final goods affordable (Swagel, 2021).
According to a recent research published in the Journal of Health Economics by the Tufts Center for the Study of Drug Development (2016), the cost of developing a new drug that receives FDA clearance is estimated to be $2.6 billion. This is up from $802 million in 2003, which is over $1 billion in 2013 dollars, representing a 145 percent growth during the ten-year research period.
While the average time it takes to get a medicine through drug testing has reduced, the success rate has dropped by nearly half, to only 12%. Tufts breaks down their $2.558 billion figure per approved compound into $1.4 billion in estimated out-of-pocket payments and $1.2 billion in time expenses.
Pharmaceutical businesses rely largely on patents to preserve their enormous efforts and investments. Patents grant a pharmaceutical business a 20-year monopoly period during which it has market exclusivity and can charge a monopoly price for its medicines. In order to recuperate investments and incentivize them to engage in additional innovation, substantial patent protection is required (Gurgula, 2020).
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When a patent expires, however, other businesses may produce generic versions of a branded medicine and compete with the original for market share. This is what is referred to as generic competition. Generic medications are bioequivalent copies of branded pharmaceuticals whose patent protection has expired (Gurgula, 2020).
Some pharmaceutical corporations, however, may utilize the patent system to get a slew of secondary patents that construct multi-layer protection around their profitable drugs, allowing them to evade merit-based competition. Pharmaceutical corporations can use strategic patenting to improve their monopolistic positions and charge high medicine costs as a result.
This strategy goes against the common objective of patent and competition laws, which is to incentivize innovation, because it diminishes the incentives for innovators, hurts generic businesses’ follow-on innovation, and upsets the delicate balance between patent monopoly and competition (Gurgula, 2020). Various reasons for high drug prices and the growing focus on incremental innovation are put forward by pharmaceutical companies, including the complexity of drug discovery and development, as well as the expensive and lengthy regulatory procedures involved.
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RESEARCH AND DEVELOPMENT IN THE PHARMACEUTICAL INDUSTRY
As the COVID-19 pandemic is sweeping through the world, thousands of people urgently need access to affordable medicines. However, there is concern that patents would limit access to any future vaccinations and treatments, resulting in unaffordable high pricing. This dilemma is aggravated by the fact that, despite purported increases in pharmaceutical R&D spending, current figures show a decline in the number of new breakthrough treatments. Furthermore, rather than breaking new ground, pharmaceutical companies are increasingly focusing their research on incremental medication development (Gurgula, 2020).
RESEARCH AND DEVELOPMENT IN THE PHARMACEUTICAL INDUSTRY
References
DiMasi, J.A., Grabowski, H.G., Hansen, R.W., 2016. Innovation in the pharmaceutical industry: New estimates of R&D costs.Massachusetts: Tufts University.
Gurgula, O., 2020. Strategic Patenting by Pharmaceutical Companies – Should Competition Law Intervene? [online](updated October 28, 2020) Available at: https://link.springer.com/article/10.1007/s40319-020-00985-0#Sec10[Accessed June 1, 2021]
Philip L. Swagel, 2021. Research and Development in the Pharmaceutical Industry. [online] (updated April 2021) Available at: https://www.cbo.gov/publication/57126 [Accessed June 1, 2021]
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