The importance of patent term restoration to pharmaceutical innovation.

Abstract

D uring the past thirty years, pharmaceutical innovation in the United States has declined dramatically. As a result of the increased time needed for testing and other regulatory requirements, the effective patent life of a new pharmaceutical product has been reduced to less than half of the seventeen-year patent term set by Congress for all inventions. Legislation to restore this lost patent protection is urgently needed to reinvigorate investment in pharmaceutical research. A recent report of the National Academy of Sciences defined “innovation” in the following way: Economists define technological innovation as the initial commercial application of a new product or process. From the standpoint of the industrial firm, the activities leading to innovation involve a long-term investment decision process. This process incorporates the various stages of research, development, capital investment, and commercialization. A firm’s investment in these activities are influenced by the same basic forces that govern outlays on other investment projects. Thus, investments for R&D and innovation will be determined by their perceived profits and risks relative to alternative investment opportunities as well as the cost and availability of funds for investment. In the pharmaceutical industry, innovation is thus best measured by the number of new chemical entity (NCE) drugs approved by the Food and Drug Administration (FDA) for marketing during any particular time. These NCE drugs represent, in the words of the National Academy, “the initial commercial application of a new product or process.”