The Financial Express of India reports that private equity firms are increasingly unwilling to invest in pharmaceutical research and development because the risks of investing the large sums of money required are too high.
The potential rewards for an investment into a new molecule are high -- but so are the risks. The vast majority of drugs studied in the laboratory never make it to market: They may not work as well in humans as they do in test tubes and animals, or they may have unforeseen side effects, or government bureaucrats might change the rules for what data must be collected when a company has already begun its clinical trials, forcing the company to abandon its earlier research.
If the amount of money at stake is small, individuals and venture capital firms are more likely to consider a high-risk investment -- in fact, a firm could diversify its investment among several R&D targets, since if one or more of them paid off, those wins would cover the losses from drugs that failed. But the amount of money is not small. The price of bringing a drug to market has been estimated at $800 million to $1 billion -- thanks mostly to government regulations that dictate what and how many trials must be conducted, how many patients must be included, and how long the trials must run before the drug can be approved. All this costs beaucoup bucks, not to mention the time that is eaten away from the drug's patent life because patent life begins at the time of discovery, not at the time the drug is permitted to be sold. Is it any wonder investors prefer lower-risk, but non-innovative, areas like manufacturing?
Venture capitalists do not invest in businesses out of charity. They do it because they want to make money -- and the greater their chance of losing money, the less money they will be willing to invest in any given venture. That's why government regulation of the pharmaceutical industry is so destructive -- because it raises the stakes so high that many investors are scared off. The result is less innovation and fewer lifesaving drugs that will be invented.
If what we want is more innovation in medicine, we need less -- less government regulation.
Thursday, May 8, 2008
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2 comments:
You rail against FDA/government regulation but there is no clear identification of where/how these impede innovation nor provide recommendations to improve/replace. We already have enough politicians and journalist that act this way and complaining is not reasoning thus reduces credibility of your blog. I see areas of potential agreement but do not find much substance worth a comment on either as supportive or counter view.
Finally I have to wonder if you and Dr. Hsieh jointly planted comments in the In the Pipeline to bring attention to yourselves/blogs rather then engaging in interactive discussion (I apologize if am extrapolating too much).
CMC guy
Elsewhere in this blog, I have mentioned why the FDA needs to go, although not at great length. I'll have a more lengthy discussion of why the agency needs to go in my article for The Objective Standard in the fall. As for what should replace FDA (a subject I have admittedly not blogged much about, but will cover in the article) -- a fallacy of anti-free-market types is to assume that to challenge the status quo, one must know exactly what would replace it. I can't know exactly what solutions would arise in a free market; I can speculate as to what those might be (private, voluntary inspection agencies similar to Underwriters Laboratories in appliances; doctors following private, professional-industry guidelines or [shock!] using their own medical judgment in advising their patients on what drugs to take), but I can't know in advance what ALL of those solutions would be. What I do know is that they would violate no one's rights.
I won't make any secret of the fact that Dr. Hsieh did point out to me the blog post on which I commented. Was it a plant just to get readers for my blog? No; he let me know about it because he knows how deeply I care about getting the government out of pharmaceutical regulation, and I commented because I want others to know that an alternative exists. It's NOT "the FDA, or else evil drug companies will win," and it's not "FDA, or else some other government agency will have to do that job." It's "FDA stifles innovation, or else get rid of the agency and watch innovation flourish under a free market" -- just as it has in electronics and other consumer goods, just as it has in less-regulated areas of medicine like LASIK.
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