Why the Pharmaceutical Industry Does Not Invest in New Drugs

The current patent system encourages the pharmaceutical industry to develop pre-existing drugs rather than innovate. Fifty-five percent of the new drugs developed have no therapeutic added value. What are we doing about this?

Why the Pharmaceutical Industry Does Not Invest in New Drugs

by  Jesse Frederik*

If we want to entice drug manufacturers to innovate, we have to pay for it, in the form of innovation grants, tax allowances, publicly funded preliminary research and – the most important measure – patents.

Innovation costs money, and hence a pharmaceutical company that comes up with a new drug has the sole right to produce it, usually for a period of twenty years. The temporary monopoly enables drug manufacturers to charge a higher price and recoup their investment in research and development for the drug.

One of the criticisms of the current patent system is that it provides an incentive to invest in what are known as ‘me-too’ drugs – drugs that do not actually improve on existing drugs therapeutically but are ‘copies’ that differ enough from the original to enable them to be patented.

The market for drugs for chronic illnesses such as depression and diabetes is so big that it is more profitable to invest in a ‘me-too’ drug than in a revolutionary new drug that offers uncertain financial returns.

What does the drug add?

‘Me-too’ innovation consequently takes place on a gigantic scale. The Geneesmiddelenbulletin has been publishing drug ratings of new drugs on the Dutch market for over ten years now. This independent monthly drugs bulletin examines whether there is enough publicly available research into a new drug and whether the quality of that research is adequate, then rates the drug on that basis.

Instead of investing in genuinely new drugs the pharmaceutical industry puts its money into medical solutions to problems for which solutions already exist.

The Geneesmiddelenbulletin examined over 112 drugs between September 2000 and February 2014, and what did it find? No less than 55% of the drugs it looked at had no therapeutic added value; 7% percent were even worse than those already available; in the case of 35% it was doubtful whether they had any added value; and only 4% were considered to improve on the existing remedies.

The Netherlands is no exception here, and similar results can be found in most countries. The French counterpart of the Geneesmiddelenbulletin previously concluded that less than 25% of new drugs provided a better alternative to what was already on the market, and around 15-20% were in fact worse.

In other words, to a large extent the pharmaceutical industry invests not in genuinely new drugs but in medical solutions to problems for which solutions already exist. On the other hand, the introduction of ‘me-too’ drugs does solve a problem caused by patents: lack of competition. As companies are not free to copy patented drugs, the only way to provide any competition at all is to come up with similar but not identical ones.

The question is whether this makes up for the waste of research funds. If there are already patent-free alternatives on the market, or several other brands, it is doubtful whether yet another drug will actually add anything.

To give an example, the cholesterol-lowering drug Pitavastatin was approved in August 2009 in the United States. It had no clear therapeutic added value. It was the eighth anti-cholesterol pill to be marketed, and the patents for three of these pills had already expired, making them even cheaper than the new one.

What is being done about this?

The European authorities are not doing much at the moment to stem the flood of ‘me-too’ drugs. The European Medicines Agency assesses new drugs solely in terms of their safety and efficacy compared with a placebo (a ‘pretend’ drug). Whether a new drug is less effective than existing alternatives does not matter.

Some EU member states do have policies in this area. Germany passed a new law in November 2010 that makes drugs more expensive if they have no therapeutic added value. A pharmaceutical company must prove to the regulatory authority that its product is better than the alternatives available; if it is not able to do so, the German health insurance fund will set a lower wholesale price for the drug.

The Norwegians went even further than the Germans: until 1992 they had a ‘medical needs clause’ in their legislation, which required the authorities only to allow ‘products that are needed’ onto the Norwegian market. In practice the local regulator therefore only approved a small number of drugs that had the best benefit-risk ratios for patients.

Norway eventually had to relinquish this clause in 1992, as a result of acceding to the European Economic Area. In 1992 only 13.8% of Norwegian applications for drug approvals were for ‘me-too’ drugs; by 1995 the figure had risen to 32.4%.

In order to get pharmaceuticals companies to focus on genuine innovation, the European Public Health Alliance and Wemos are lobbying the European Commission to consider solutions of this kind. The authorities need to attach more importance to therapeutic added value in their drugs policies.

Whatever the solution may be, one thing is clear: it is imitation – not innovation – that pays under current patent law. And that was never the intention.


*A translation of an article in Dutch by journalist Jesse Frederik in De Correspondent: https://decorrespondent.nl/1856/Waarom-de-farmaceutische-industrie-niet-in-nieuwe-medicijnen-investeert/125083421760-cad52bbe

Published under permission by Ella Weggen, Wemos Foundation