Alex Singleton: The Effect of Patents on Drug R&D
Singleton questions the conventional wisdom that pharmaceuticals are unique because of their high cost of R&D compared to production cost. He cites a study of the Italian drug industry before and after its 1978 adoption of drug patents which found that Italy developed some nine percent of the world's "new molecular entities" (as opposed to tinkering around the edges with "me, too" drugs) before drug patents were introduced. The rate of major innovation actually went down under the new regime.
F.M. Scherer, in his study of the effects of patents on innovation, found drugs to be the one exception to his general conclusion that most product and process innovations would have been adopted even without patents, for the sake of competitiveness. But even in the case of drugs, around half would have been developed without patents. And that figure itself would be more meaningful if it incorporated the distinction between "new molecular entities" and "me, too" drugs.
The Italian case suggests to me, at least, that without patents drug companies are likely to gamble more of their R&D efforts on genuinely new drugs, whereas with patents they're more likely to try to game the patent system with incremental "me, too" research.
It's important also to treat separately the artificial inflation of R&D costs by the FDA and its counterparts. If the market were allowed to set acceptable levels of risk, though insurance and tort liability, and the buyer had more responsibility for assuming risks other than fraud, the cost of development would no doubt fall considerably. It's a damn shame and disgrace that a grown man or woman has to go to Mexico to put (say) laetrile or Hoxsey's red clover formula into their own body.
Check out, also, Singleton's Pharmopoly Blog.