Drug Company Research

The NY Times today has an article on the lack of innovation in drug research by Big Pharma. It seems to me there are several reasons why the drug companies aren’t being so innovative:

1) No more low-hanging fruit. The ‘traditional’ model of drugs (take two of these and call me in the morning) has run its course to a considerable extent. First, many health problems in this country are systemic (obesity, lung cancer) that don’t respond well to a drug therapy. Second, we have a lot of effective drugs, so a new drug has to be even better. In other words, the marginal rate of return is diminishing. Consider the new ‘major’ drugs: they deal with pseudo-problems. Erectile disfunction isn’t malaria, which brings me to my second point…

2) All the good diseases are taken. There are plenty of diseases to cure, but very little profit in them (i.e., malaria). While Bill Gates might try to do the right thing (and he deserves credit for that), Big Pharma won’t make much money (or any money) selling cures for ‘Third-World’ diseases.

3) Going from basic research to product. Right now is a really exciting time for biology. Decades-old technologies are starting to come together to yield tremendous insights (although it’s unclear whether we are developing new technologies for the future). However, it’s becoming clear that many diseases have very specific causes and can’t be treated with a single magic bullet (if there is such a bullet, it’s not going to get here for a couple of decades). There might not be a cure for cancer, but a cure for a specific kind of cancer. The problem for drug companies is that “little diseases” don’t have high profit margins. Unlike broad-spectrum antibiotics, many diseases will have very few patients (and hence customers).

Ultimately, I think we’re seeing the convergence of two trends. One trend is that the ability of drugs to increase the quality of life and length of life are declining in absolute terms (what economists call the marginal rate of return). The other trend is the dominance of the profit motive–there are many ill people out there, but the profit margins make research and treatment unprofitable.

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