A Future With Fewer New Miracle Drugs

I have an article in this month's magazine about pharmaceutical pipelines.  It sounds dry (and perhaps the piece is, a bit), but it's incredibly important.  Ever since what looks like a historical peak in the mid nineties, the number of new medical entities being approved by the FDA has been in a long, slow decline.

This is, obviously, a good place for a typical libertarian jeremiad against the Food and Drug Administration, but while I think there are quite a lot of problems with the way that that body operates, it cannot bear all of the blame for the decline.  As I discuss at some length in the feature, it may just be getting harder to find new drugs.  There are a lot of reasons for this, but all of them add up to a slower pace of drug discovery.

Obviously, one of the questions this raises, for me and long time readers of my blog, is whether this changes how I feel about health care reform.  That's a complicated question, for a lot of reasons--for starters, watching the adminstration and the state of Massachusetts fool around with quasi-controlling insurance prices, I now think that I may have seriously underestimated the risk that this thing will turn into a massive fiscal disaster that could precipitate a serious budget crisis.  (Of course, it's a work in progress, so ask me again in a few years).  But obviously, one of my major objections has been that the program would slow the rate of medical innovation; if medical innovation is slowing anyway, maybe that's not such a big problem.

I'm not sure what to think, actually, for a couple of reasons.  First of all, there's some pretty convincing literature showing that prescription drugs actually save money and reduce the deadweight loss of the Medicare program.  If the pace of drug innovation is slowing, that means that reducing profits in pharma will cost us less, in lost research, than it would if productivity were higher.  However, it also means that our projections for future cost growth in Medicare, and the new program, are probably too low, because those projections are based on a recent period when prescription drugs were tamping down cost inflation in the rest of the system. 

The most expensive part of the health care system is labor; this cost is also the hardest to control, in part because health care workers have the most effective lobbies. The cost of labor is why even very expensive drugs are usually cost effective (unless they're super-complicated cancer drugs that have to be administered in a clinical setting).  If we aren't able to substitute drugs for procedures in the future at the same rate as we have in the recent past, this suggests that there will be more upward price pressure from surgeries and so forth than we have recently experienced.

Given how useful prescription drugs are, it's not clear to me that a low rate of research productivity is a reason to try to wring profits out of the system; rather, it might be an argument for giving researchers even juicier incentives to come up with new drugs.  Of course, that's a tricky value judgment, which is why I prefer to leave questions like "how much should be spent on pharmaceutical R&D?" to the market, not the regulators.  Unfortunately, I think that's not an option we're really going to have in the future.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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