How should we support pharmaceutical innovation?

The question as to how society should support pharmaceutical ('pharma') innovation is both pertinent and timely: pharma drugs are an integral component of modern healthcare and hold the promise to treat various debilitating health problems more effectively. The productivity of the pharma research and development enterprise, however, has declined since the 1980s. Many observers question whether the patent system is capable of providing the appropriate incentives for pharma innovation and point to several promising alternative mechanisms. These mechanisms include both 'push' programs - subsidies directed towards the cost of pharma research and development - and 'pull' programs - lump-sum rewards for the outputs of pharma research and development, that is, new drugs. This article reviews the evidence suggesting why our current system of pharma patents is defective and outlines the various alternative mechanisms that may spur pharma innovation more effectively.