Priority Medicines for Europe and the World 2013 Update. Background Paper 2 - Pharmaceutical Innovation and its Policy Environment
(2013; 26 pages)


Biomedical technology companies seek to conduct research and commercialize products in a stable, predictable operating environment that encourages and rewards innovation. These companies are accountable to the shareholders and customers they serve. The pressures being placed on pharmaceutical companies, from within and without, can negatively impact innovation. The resources required for drug development have risen markedly in the past 30 years, so that these costs may threaten to make the development of new drugs increasingly unaffordable for both companies and consumers. From a business viewpoint, this ever-increasing cost of drug development 1 is an incentive for companies to invest in products likely to provide the highest rate of return on research and development (R&D) investment. This incentive is often realized by developing drugs against proven targets using approaches that have already been clinically and financially successful, although some companies attempt the difficult task of having projects with higher success rate but a lower potential return as well as projects with a higher risk but potentially higher reward.

Notwithstanding, pharmaceutical research has a high failure rate. Of every 5 000 projects only one completes the drug development process and, of those that do, only one in five actually returns its R&D investment.2 Regulators have progressively increased the requirements for product authorization in a quest to promote safety and efficacy. Reimbursement authorities have often been more interested in controlling drug costs rather than considering total healthcare benefit. Providing appropriate incentives for developing products targeted for important public health needs, less common diseases, prevalent third world diseases, prevention indications, or individualized therapy is becoming increasingly challenging.

Key drivers of pharmaceutical innovation from both supply and demand perspectives can include:

  • a high level of public interest in health care issues
  • strong public support for increasing national, public sector research funds
  • increasing private investment in medical R&D, although private sector interest fluctuates depending on other business opportunities
  • size of the market and expected return on investment
  • changing demographics such as an ever-aging population which alters research priorities to other diseases (e.g. Alzheimer disease, diabetes, chronic diseases)
  • public expectations about who performs high quality science
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