Financing Drug Innovation in the US: Current Framework and Emerging Challenges

The current US drug innovation financing framework rests on the notion that a defined period of marketing exclusivity combined with the expectation of reimbursement for clinically valuable, cost-effective therapies, followed by vigorous price competition from generic drugs and biosimilars ensures a sufficient return on investment (ROI) to incent private sector risk-based investment and research and development activities while providing access for new treatments to patients. While periodically, alternatives such as government prizes, direct purchases or development, and limits on certain incentives have been proposed, the basic approach has remained intact since the 1980s, with incremental provisions addressing specific gaps and priorities, and adding provisions for biosimilar entry. This paper reviews the main elements of the current US system to financing drug innovation and its approach to balancing multiple objectives. In addition, the system for financing drug innovation must be effective over a wide range of potential scientific approaches and economic conditions. It should be predictable for investors and payers making long-term development and coverage decisions, while also encompassing unanticipated new treatment modalities and scientific progress. An important emerging challenge is posed by clinically transformative, high-investment, single-administration therapies, such as gene therapy. Continued experimentation and the input of a range of stakeholders are needed to ensure next-generation therapeutic advances continue to be developed and made available to patients.