Economics of Drug Discovery and Development

The pharmaceutical market is very competitive. It is imperative that pharmaceutical companies (including biotechnology companies), large or small, 

A positive return of revenue only occurs after the drug has been approved by regulatory authorities for marketing. The overall profitabihty of a drug is the difference between the positive returns and the negative expenses within the patent period of 20 years. After that period, if the patent is not extended, there is no further protection on the intellectual rights for the drug. 

Exhibit 1.5 provides a brief explanation of patents. Patents are the pillars that support the drug industry. In contrast, traditional medicines, which are mainly derived from natural products of plant or animal origins, are not patentable. This is because traditional medicines consist of a multitude of compounds and it is difficult to establish patent claims based on varying quantities of materials. 

A patent is a right granted by a government for any device, substance, method, or process that is new, inventive, and useful. The patent discloses the know-how for the invention. In return for this disclosure, the owner of a patent is given a 20 year period of monopoly rights to commercial returns from exploiting the invention. 

The PCT does not grant patents. Application under the PCT goes through two phases an international phase and a national phase. The international phase is where the application is searched, published, and subjected to preliminary examination. Then the application enters into the national phase in each country. The application is subjected to examination and granting procedures in each country. 

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There is intense economic pressure on the pharmaceutical industry by those who pay for its products to make the development of drugs more efficient and thereby reduce or at least contain costs. Industry executives ignore this clamor at their own peril. A widely embraced strategy to improve productivity is to integrate drug discovery and development by bringing company researchers from basic, preclini-... 

Hence, the drug discovery and development process is a two-part exercise in mitigating the economic punishment to product sponsors while maximizing the probability that something that can be developed successfully is actually found. As few as 1 % of promising lead molecules will be tested in human beings fewer than one-third of those tested... 

The patent buys time and exclusivity. The economic model of drug research, discovery, and development needs patent protection if the discoveries are going to be economically viable. The original patent lasts 20 years from published discovery but can usually be effectively extended by 2 or 3 years. This is germane to the pharmaceutical business. 

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