Regulators Are Making It Harder For Innovators To Save Lives

"All imaginable inventions have already been invented."

This possibly apocryphal quote is commonly attributed to Charles Duell, the manager of the American Patent Agency. The year was 1899. Clearly, Mr. Duell was not quite correct. However, he was hardly the first person to make such a mistake.

In 10 A.D., Roman Engineer Julius Sextus Frontinus said, "Inventions have long since reached their limit, and I see no hope for further developments."

This may have been the first such quote (or just the oldest I found), but plenty of similar quotes exist to demonstrate that humans have both an infinite capacity for invention and a complete failure to grasp the possibilities of future innovation.

"That's an amazing invention, but who would ever want to use one of them?" is what President. Hayes said when Alexander Graham Bell demonstrated the telephone for him in 1876.

Lord Kelvin, president of the Royal Society and an accomplished enough scientist to have one of the world's three temperature scales named after him, said "Heavier-than-air flying machines are impossible" in 1895, only eight years before the Wright brothers proved him wrong.

Trust me; I could fill an entire column with examples of such quotes. However, I want us to focus on a recent example of this genre:

"For a long time, there have been newspaper stories and covers of magazines that talked about ‘The end of antibiotics, question mark?' Well, now I would say you can change the title to ‘The end of antibiotics, period'." This quote belongs to Dr Arjun Srinivasan, who happens to be an expert on antibiotics who works for the Centers for Disease Control.

Now it is certainly true that we have not had a new antibiotic approved in a while. It is also true that more and more bacteria are developing resistance to most or all of the antibiotics in our infection-fighting arsenal. Yet this is surely not a sign that we have lost the ability for new discoveries or that human ingenuity is on the wane. Rather, it has a lot more to do with the difficulty and expense of getting a new drug approved in today's regulatory environment.

The current estimate of the cost to invent or discover a new drug, develop it, take it through trials, and get FDA approval is $1 billion. That cost does not include anything for the money spent on drugs that do not reach the end of approval process which can be considerable, especially if a drug gets near the end of the regulatory process before failing to clear a hurdle. What this means is that pharmaceutical companies are only interested in developing drugs that have the potential to earn very large profits, since such profits are necessary for the companies to recover the money they have spent on the development of both approved and failed drugs. It also means that next time you want to complain about the high price of prescription drugs remember that most of that price is to cover the cost of drug development and gaining regulatory approval.

Worse, the cost of complying with government regulations means that essentially no small pharmaceutical companies can afford the full cost of discovering, testing, getting approval for, and then marketing a drug. This high regulatory burden forces small drug companies to team up with the large, multi-billion dollar pharmaceutical companies in order to get new drugs to market. Small companies can discover new drugs and take them part of the way toward approval, but eventually need to find a partner to help share the cost burden.

This economic reality has two significant downsides. First, it reduces the number of drugs that reach patients because some fail to be approved due to either lack of profit potential or because their developers ran out of money before making a deal with a richer partner. Second, it tends to create an oligopoly in the prescription drug manufacturing and marketing sector. When firms are asked to risk $1 billion on developing a new product, it takes deep financial pockets to stay in the game.

An oligopoly is an industry with only a few companies selling competing products, where economists usually define "few" as being from three to eight firms. The same government that normally fights against such market concentration is creating a more concentrated market in this case. Prices in such concentrated industries will tend to be higher than in a more competitive market.

The FDA has the mission to protect the American public from both fake and unsafe drugs, and it takes this mission very seriously. It has also shown a commendable ability for a regulatory agency to exercise some flexibility when the situation demands it. For example, when there were no approved drugs to treat HIV-AIDS the FDA used a lower standard for proof of efficacy. Since the patients were certain to die without treatment, drugs were approved more easily.

Along these lines, the U.S. FDA and the European Union's regulatory structure have both enacted programs that ease the path to approval for orphan drugs. Orphan drugs are drugs designed for a population that is relatively small. Normally that would mean the company would be unable to recover the costs of drug development and approval. To counteract this, orphan drugs are allowed easier (and thus less expensive) approval as well as a longer period of patent protection.

To solve the current problem with antibiotics, the FDA should simply follow a similar model. Design an approval process that is rigorous but less expensive and takes less time to complete. Provide extra patent protection for new antibiotics that demonstrate success against drug-resistant strains of bacteria.

If entrepreneurs are presented with the right signals and potential profits, they will turn their energy and ingenuity towards solving the problem and finding the answers society needs. New antibiotics are in demand, so turn the free market loose and it will provide them.