The Pharmaceutical R&D Model is Broken. Here’s How to Fix It
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and where I admit that I have little direct experience, has to do with a perceived lack of passion and control. I’ve worked for a biotech where the scientists (and many other employees as well) worked evenings, weekends, and holidays to move their projects forward. They had the drive, the fire in the belly. Are contract employees similarly invested? Will they do your studies the right way? Are they motivated to go all out and spend long days solving all of the problems that keep you up during long nights?
New (draft) legislation has been proposed (The Therapeutic Tax Credit) as part of the nation’s health care reform package that would provide a large tax benefit to biotech companies with 250 or fewer employees. The grant-like program would require companies to vie for funds based on how their drugs would lower health care costs or meet unmet medical needs. Interestingly, this competition is to be vetted by the Treasury Department, not previously known for its wisdom in reviewing drugs. Winning companies would be awarded tax credits (and possibly cash payments) that would cover as much as 50 percentof research and development expenses. The entire program is envisioned as lasting two years, and is capped at a total expenditure of $1 billion.
While I would love to see a tax credit to boost biotech research, this approach seems fraught with problems. One can imagine companies telling the Feds that their drug will lower health care costs because it will only cost $500/month when launched. Then, when it really does get on the market, the actual price turns out to be $10,000/month. Who could have seen that coming? And science can surprise even the best of intentions. Get a tax credit for developing a drug for heart disease, and then sell it for erectile dysfunction (this is the story behind Pfizer’s Viagra). There would need to be some serious safeguards put in place to handle either of these types of scenarios before I (and I imagine many others) could support something like this.
New approaches are needed that remove the pressures on startup companies to race into the clinic with drugs that are not ready for prime time. An obvious path, and one that I favor, is to incentivize investment in early stage biotech and pharma. The long timeline required to develop a new drug is perhaps unique to this industry. Investors in biotech and pharma need to be compensated, in the form of a greatly reduced tax burden, to balance both the nature of the risk as well as the lengthy development times. My suggestion: lower or eliminate taxes on investments in pharma and biotech that are in place for more than five years. This would hopefully entice investors into accepting a longer waiting period before financial returns are realized. This, in turn, would then allow companies more time to develop novel drugs that are likelier to succeed in the clinic. Besides tax reductions, other innovative types of incentives should be considered to reward the investors who provide the resources that fuel innovations in America’s healthcare.