President Obama has been on an "innovation" binge these days. Since the start of the year -- when he mentioned "innovation" nine times in the State of the Union -- the President has celebrated "Innovation Week" and released a 76-page " Strategy For American Innovation."
Why, then, are his policies doing so much to undermine his rhetoric?
A case in point is medical innovation, an area where the United States is unrivaled. Whether it’s the newest flu vaccine, the most effective arthritis pain reliever, or the medications that helped turn the HIV/AIDS epidemic of the 1980s into the contained, survivable disease it is today, the American pharmaceutical industry has led the way. Across the board, Americans survive most illnesses longer and recover faster and more safely than anyone, anywhere. The reason for this is simple: here, people have access to the best, most advanced medical treatments in the world.
It can cost over a billion dollars and take more than 10 years for a new drug to reach the marketplace. For every promising treatment that pans out, hundreds fail along the way. Innovation in pharmaceuticals is not automatic, though; rather, it’s the product of an incentive structure that rewards the high-risk undertaking.
It’s the incentive structure the Obama administration is threatening to undermine, both directly and indirectly.
Innovator pharmaceutical companies invest billions in research knowing that if they win FDA approval for a treatment, they will have a period of time in which they alone will be able market the product. This protection for innovators basically takes two forms. First is a patent on the treatment. Second is a period of “data exclusivity,” in which would-be copycatters, in their own requests for FDA approval, may not make use of the clinical trial data of the innovator. The latter protection is especially important when development takes a long time, as it often does with biologics, the revolutionary treatments stemming from recombinant DNA technology.
In his 2012 budget, Obama proposes to shorten the data exclusivity term for biologics from the current 12 years to seven years. This means that the innovator drug companies will have five fewer years to recoup their investment costs before an army of lower-priced copycats arrives on the scene. That’s bad for innovation. If the administration gets its way, there is no doubt drugmakers will begin to funnel resources toward safer, less expensive endeavors and away from the type of pathbreaking research that, though risky, often results in the greatest reward.
Sally C. Pipes serves as a health care advisor to The Rudy Giuliani Presidential Committee. She is President and CEO of the Pacific Research Institute. She is author of Miracle Cure: How to Solve America’s Crisis and Why Canada Isn’t the Answer.