The Importance of Strong IP to the Pharmaceutical Industry
Strong patent protection is needed to incentivise the high risk and high cost of developing new pharmaceuticals as
it creates the conditions under which industry can generate the returns needed to fund R&D. The cost, time and
risk involved bringing a product to market is huge:
– Safety and efficacy requirements mean it takes between 8 and 12 years to bring a product to market, and the
vast majority of this time passes while the 20 year patent term is running. Returns on the investment,
therefore, usually only begin relatively late in the patent term, thus reducing the effective period of patent
protection in which adequate returns can be obtained.
– For every 10,000 compounds that are tested for pharmaceutical activity, only 3 reach the market. And only
one in every 3 drugs which reach the market is profitable.
– Allowing for failure (more than 90% of the compounds that enter clinical trials fail to demonstrate sufficient
safety and efficacy to gain regulatory approval) it costs on average almost $1.2 billion on research and
development to bring a drug to market.
Although the public sector has a crucial role to play in the initial discovery of some drugs, most are invented by the
private sector. Further, the post-invention proof of safety and efficacy (by far the most expensive and risky part of
the development process) is almost without exception undertaken by, and at the risk to and cost of, the private
sector.
Drugs are generally easy and cheap to copy. Industry estimates suggest that it costs $2-3 million to bring a copy of
a small molecule product to market. Generic companies generally (and understandably) focus their efforts on
copying very successful innovative drugs at the end of patent protection. Therefore, companies which do not bear
the risk and cost of drug development can, without doubt, sell drugs at a profit more cheaply than those that do
incur the risk and cost of development.