Selling The Cure For The Disease They’ve Caused

According to the New York Times, the federal government, apparently unhappy with drug companies’ productivity in the last 15 years, has decided to go into business for itself:

The Obama administration has become so concerned about the slowing pace of new drugs coming out of the pharmaceutical industry that officials have decided to start a billion-dollar government drug development center to help create medicines.

The new effort comes as many large drug makers, unable to find enough new drugs, are paring back research. Promising discoveries in illnesses like depression and Parkinson’s that once would have led to clinical trials are instead going unexplored because companies have neither the will nor the resources to undertake the effort.

The Times then goes on to note that, “drug companies have typically spent twice as much on marketing as on research, a business model that is increasingly suspect.”  NIH has long been involved in basic research, but this is the first time that the government will get into the business of actually developing and conducting clinical trials of drugs.

We’ll dwell for a moment – but only for a moment – on the Times’s, and by implication, the Administration’s, utter neglect of the possibility that the FDA’s culture of risk-aversion, insistence on testing for efficacy (as opposed to just safety), and the WTO’s failure to protect intellectual property have all contributed to a risk-aversion on the part of the drug companies.

But there may be something else going on here, too.  It’s entirely possible that we’re seeing a short-term phenomenon that’s being mistaken – or portrayed – as a long-term one.   In, City Journal (“Hooray for Blockbuster Drugs“), Paul Howard argues that the development of incremental improvements is a good thing. for a variety of reasons.  It’s certainly something that the regulatory regime encourages.  But aside from that, it’s the logical filling-out of major advances that came very quickly, based on basic research that was done much earlier.

Eventually, the diminishing returns from this sort of thing, and the increasing costs and uncertain returns of marketing them, should lead one or more major drug companies to take the leap and try to productize some of the results of gene-based research.  The first efforts are likely to be more risky and more expensive, and our current policies have probably exacerbated a reluctance to take large risks in a down economy by raising those costs, both certain and uncertain.

The worst part?  Paul Howard:

Some of these investments have been overhyped, but others will eventually produce breakthrough innovations, just as the investments of the sixties and seventies did. And when they do emerge, new technologies (including much more sophisticated diagnostics) will allow doctors to choose drugs for patients most likely to benefit from them. The advent of personalized medicine will also give companies powerful new marketing and pricing leverage. The size of the market for particular drugs may shrink—and drug companies may become smaller and more nimble to exploit fast-moving scientific discoveries—but insurers and governments will find it much more difficult to ration access to targeted therapies. (Emphasis added.)

Just at the time when the new drugs have the chance to democratize medicine in a way that the Internet has democratized political debate, the government is going to step in and make sure that doesn’t happen.

The $1 billion committed to the project so far is about 2% of what drug companies already spend on R&D.  It’s hard to believe that this is a better answer than lowering regulatory costs and uncertainties.

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