Maintaining Appropriate Incentives for Biopharmaceutical Innovation

As we enter the second half of the decade, the biopharmaceutical industry’s approach to research and development (R&D) continues to evolve to meet the growing demand for new medicines. New research, including several pieces published in a special biomedical innovation issue of Health Affairs, reinforces the continued challenges and growing costs and uncertainty associated with translating scientific advances into new medicines for patients.

Recent estimates indicate the cost of developing new medicines is on the rise as clinical trial complexity and protocols increase. At the same time new research by MIT economist Ernie Berndt and others finds that economic returns have been declining for the innovative biopharmaceutical industry since 2005. These trends raise concerns about the ability of companies to sustain the long-term investments needed to discover and develop new treatments and cures for our most costly and challenging diseases.

A new article on venture capital trends suggests that the impact may be particularly concerning for early-stage biotechnology companies, which are already facing challenges in securing funding for their research efforts. The study found that growing R&D costs and increasing uncertainty surrounding regulatory and payment and coverage policies have led to a significant decline in venture capital funding for early-stage life science projects.

Intellectual property policies can play a critical role in reversing these trends. A 2014 survey of biopharmaceutical executives found robust intellectual property protections to be the single most important factor in driving future growth in the U.S. biopharmaceutical research and manufacturing enterprise. New research by Duke economist Henry Grabowski and others reinforces that patents and data protection are foundational to fostering continued innovation.

These IP incentives, along with the appropriate valuation of medicines, ensure that companies can potentially recoup the investments made and use potential returns to support the long-term research investments needed to develop life saving medicines.

President Obama’s recent budget request includes a proposal to reduce data protection for innovative biologics from 12 to seven years. This is a step in the wrong direction—such proposals disregard the critical role of IP in fostering the development of new medicines and could further drive investment away from promising scientific opportunities.