This one is easy; the pharma industry has done a good job of introducing effective medicines. To take one example most will be familiar with is Lipitor (atorvastatin). It was not the first statin, far from it, but it worked remarkably well and was a huge hit for Pfizer until it went off patent, at which point $14 billion of annual sales became $700 million within 18 months. So, thanks to Pfizer the world has a great statin that works for 95% of patients, and which is now sold at generic drug prices.
What about the next generation of statins? There probably won't be one. It costs a lot of money to design, test, and introduce a new drug and the world already has an inexpensive drug that works for almost all patients. What is the potential market for a new statin? The 5% of patients that do not do well on existing medications. FDA will require any new entrant to compare themselves to atorvastatin and show that it is at least equivalent, and hopefully better in order to get approval. Once approved, a new on-patent drug will have a high price and you can be sure the payors will insist that the patients try a generic first to prove that they need the new drug. That is not an attractive financial and investment proposition!
This problem is not limited to atorvastatin; there are numerous drugs that work very well that have expired patents and a boatload of generic competitors. It becomes increasingly difficult to show clinical results that are compelling and superior to older drugs, and managed care is not standing in line to pay for new drugs unless they are truly breakthrough therapies. As a result, everybody chases a handful of truly unmet diseases (Parkinson's, Alzheimer's, certain cancers) where the investment requirements are high, and the chance of success is low due to the increasing fierce competition and the difficulty of treating the diseases. It is not that the industry can't find new drugs, it is more that the industry can't profitably sell those drugs to the market at a price that will allow the recovery of the investment. Productivity gains cannot compensate for the deterioration of the economic proposition.
That's my story, and I am sticking to it.
