October 02, 2002



Excellent analysis in TNR about why the number of new drug discoveries has slowed dramatically in the late 1990s. Nicholas Thompson lays out the evidence, and points the finger at two recent regulatory developments, but curiously suggests fixing only one:
--the U.S. lifting of advertising restrictions on prescription drugs five years ago; and
--the explosion in biological patenting by universities and corporations begun in 1980 with the Bayh-Dole Act.

Thompson argues that the latter cause has ossified the industry, by giving control over the building blocks of research (often human proteins found naturally in the body) to people who don't want to share them for less than top dollar. Over 50 human proteins, for instance, needed to make progress in cancer research, are patented and unusable: essentially patent legalities are closing down the lines of biological research. Meanwhile, the upswell in marketing expenses required to keep competitive, due to the other change, has diverted funding away from drug company R&D to pointless TV yapping about drugs you need a prescription for anyway.

The drug companies themselves, Thompson explains, are unable to make a case against biopatents, because they're too busy fighting the HMOs and activist groups, who want to roll back their monopolies attained through end-product patents... which are a bit of a canard in the whole debate.

A couple corollaries from Thompson's piece: Europe and Canada, with similar patent legislation, but an ongoing ban many kinds of prescription drug advertisement, are likely to start hitting above their weight when it comes to drug R&D as a result... as the implicit market economics still force them to find new discoveries to keep afloat whereas U.S. big pharma has the alternative of heavily marketing an existing treatment instead, or focussing on non-life threatening but easy-to-market problems like hair loss, etc. This certainly seems to be borne out by the large number of recent FDA-approved new drugs coming from offshore. (Increasingly the big U.S. companies are ceding their role as drug pioneers and becoming instead innovation brokers, licensing small or foreign companies' innovations, guiding them through the complex process of FDA approval, then marketing the hell out of them while protecting their monopolies as long as possible with outsized legal teams). That system, while arguably more inefficient that what preceded it in the U.S, or is found abroad today, could still work, but not if every company and university hangs on to the few human proteins and processes they have the legal rights to without lending any of them out. As Thompson points out, that's a dysfunctional system: patent law only exists to ensure the fair sharing of knowledge... if no one's sharing, the system is broken.

That's the other corollary: that this is such a heavily regulated (and publicly funded, through federal R&D grants to the university researchers) industry that arguments about freer markets, costs that the market will bear, and the like, that one sees when Big Pharma strikes back at HIV activists, for instance, no longer apply, if they ever did. Think about it: the universities find something promising with taxpayer funds, your company buys it off the original researcher, bundles it into a new drug that somebody, somewhere must have to live (talk about a captive market!), gets it approved and then you have 15 years of government-guaranteed patent monopoly to recoup your investment. There's really no market role in that, other than the success/failure assessments rendered upon you by your stock price compared to the others.

The causes of the current problems were regulatory. The solutions will likewise be regulatory: fixing patent law and reining in overmarketing of prescription remedies. In the meantime, drug research worldwide will increasingly slip into total gridlock.

Posted by BruceR at 04:45 PM