Making Do in Making Drugs: Innovation Policy and Pharmaceutical Manufacturing

Abstract

Drug recalls, contamination events, and shortages are on the rise, but drug companies still rely on decades-old manufacturing plants and processes. Contrary to widespread perceptions, drug manufacturing is typically expensive, inefficient, and non-innovative. Drug companies spend much more on manufacturing than on research and development, but the industry lags far behind the innovative manufacturing found in other industries. This lack of innovation in drug manufacturing stands in stark contrast to the innovation present in drug discovery. Drug discovery is the focus of a calibrated innovation policy that combines patents and the regulatory regime. Manufacturing lacks such attention, and the costs are great, both in dollars and in human lives. This article addresses the previously underappreciated role of manufacturing in innovation studies and policy. The stagnation of pharmaceutical manufacturing results from regulatory barriers and ineffective intellectual-property incentives. As a result of the difficulty enforcing manufacturing process patents, manufacturers tend to rely on trade secrecy instead, which reduces innovation. Making matters worse, regulation actively impedes innovative changes to manufacturing methods through substantive and procedural barriers across the lifespan of a drug. To address these challenges, this article suggests several direct regulatory reforms. It also proposes novel ways that regulation can be used to change the function of intellectual property incentives, which fit particularly well in the drug manufacturing context but could be extended to different areas of innovation policy. For example, FDA could be charged with operating a system of temporary market exclusivity for manufacturing innovation parallel to the patent system. Alternately, FDA could require disclosure of manufacturing methods to drive the industry from opacity and trade secrecy towards transparency and patent protection for innovation. A better targeted and more effective innovation policy could improve the current sad state of drug manufacturing with potentially immense economic and health benefits.