Market Structure and Drug Innovation

An explosion of knowledge and a growing array of tools and technologies have transformed modern drug R&D, while its cost has risen by a sizable amount. At the same time, the unchecked increase in health care and prescription drug spending has spawned cost containment policies that are restricting the demand for drugs in all major markets. This Perspective explores the interplay between technological advances and regulatory policies and their likely impact on the dynamics of the pharmaceutical industry. Advances in the life sciences have profoundly transformed the drug research and development (R&D) process. That transformation has come at a price, boosting the cost of developing a new molecular entity (NME) to $802 million by 2000. More expensive R&D, combined with an aging population and better diagnostic techniques, has swelled drug spending in the United States, which reached $141 billion in 2001. These increases have in turn induced a spate of cost containment measures that are affecting demand for pharmaceuticals in all major markets. This Perspective considers the impact of the interplay between technological advances and health care policy on the future dynamics of the pharmaceutical industry.