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Editor’s note: This has been excerpted with permission from the Pacific Research Institute. To read the entire report, click here.

The government explicitly grants innovators temporary market exclusivity to provide an opportunity for groundbreaking pharmaceutical companies to recover the costs of capital associated with developing novel treatments. This was one of the express purposes of past federal reform legislation, such as the Hatch-Waxman Act signed in 1984 and the Biologics Price Competition and Innovation Act of 2009 (BPCIA).

The reality that, since 2000 alone, 750 new medicines have been developed, demonstrating that these acts are achieving their stated purpose. The pharmaceutical industry’s investments in R&D relative to other industries also demonstrate the efficacy of the Hatch-Waxman/BPCIA approach.

Between 2012 and 2022, the biopharmaceutical industry invested $279,000 per employee into R&D investments, which is 13 times larger than the average investment for all manufacturing industries. Further, biopharmaceutical companies invested more than $12 million for every patent issued, which was also higher than any other sector.

However, the biopharmaceutical industry’s sales revenues generated per patent was $38.5 million, which is only average. Manufacturing in the professional, scientific, and technical services earned nearly $300 million per patent in comparison – nearly eight times higher.

The extreme gap between investment required per patent and revenue per patent illustrates the inherent risk associated with developing new medicines. The smaller revenue per patent also further undermines the accusations that market manipulation is occurring.

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