Patents and Other Incentives for Pharmaceutical Innovation

The public sector helps finance the drug discovery enterprise through a variety of mechanisms. These include grants for biomedical research conducted in public sector labs, tax subsidies for private drug plans, and the extension of intellectual property privileges to drug developers. The cost of bringing new drugs to market has increased markedly during the past two decades. This has raised questions about whether existing forms of public sector support is optimal, and, in particular, if alternative forms of public support would result in more therapeutically valuable drugs per dollar spent. This article reviews the advantages and deficiencies of existing forms of government support for drug R&D, and the features of the alternative arrangements that their proponents suggest will improve in the current system. The authors review both ‘push’ programs – schemes that make private investment in pharmaceutical R&D more profitableby reducing the private cost of the R&D – and ‘pull’ programs – schemes that increase the revenues accruing to companies that manage to bring new drugs to market. The chapter concludes with an assessment of the issues that need to be resolved for these alternative forms of support to be actually implemented.