66 Pages Posted: 10 Oct 2013
Date Written: October 1, 2013
One of the most dramatic public-policy failures in biomedical research is the lack of incentives for industry to develop new therapeutic uses (“indications”) for existing drugs once generics are available. Policymakers and commentators are well aware of this “problem of new uses,” but fail to appreciate its magnitude. Over the past decade, this gap in the incentives for pharmaceutical R&D has become one of the greatest barriers to medical progress. Recent technological advances have allowed researchers to identify hundreds of potential new indications for older drugs that could address critical unmet medical needs. And researchers are poised to discover hundreds more. Developing new indications for existing drugs is much faster, cheaper, and less risky than developing new drugs, and therefore offers the single most promising avenue for delivering new medical treatments to the public. However, pharmaceutical companies invariably lose interest in developing new uses for existing drugs when patients have access to low-cost generics. This article explores the nature and source of this gap in the incentives for developing new medical treatments, showing that it ultimately stems from a simple information problem. At present, the government encourages drug development by granting firms temporary monopoly rights that block generic manufacturers from making or selling imitations of their drugs. The government also makes available an alternative type of monopoly protection for new indications that applies to the act of taking or administering a drug for a new therapeutic use. The latter monopoly rights could provide the appropriate incentives for developing new uses of existing drugs. However, pharmaceutical companies cannot enforce these rights without knowing when physicians prescribe the drug for the patented indication as opposed to some other use. If the government established an infrastructure for pharmaceutical companies to monitor the prescribed indications when pharmacists fill a prescription, those firms would possess the information necessary to enforce patents on new indications, thereby solving the problem of new uses. This article argues that the government could easily create such an infrastructure through the expanding use of e-prescribing software and electronic medical records.
Keywords: Patent, Patents, Pharmaceutical, Drugs, Innovation
JEL Classification: H51, I18, K39, L65, O34,
Suggested Citation: Suggested Citation