Public Policy and Pharmaceutical Innovation

Historically, new drug introductions have played a central role in medical progress and the availability of cost-effective therapies. Nevertheless, public policy toward pharmaceuticals has been characterized in recent times by increasingly stringent regulatory controls, shorter effective patent terms, and increased encouragement of generic product usage. This has had an adverse effect on the incentives and capabilities of firms to undertake new drug research and development activity. The industry has experienced sharply rising research and development costs, declining annual new drug introductions, and fewer independent sources of drug development. This paper considers the effects of government regulatory policies on the pharmaceutical innovation process from several related perspectives. It also examines the merits of current public policy proposals designed to stimulate drug innovation including patent restoration and various regulatory reform measures.