Low profits from new uses of existing compounds
While drug companies actively seek out new uses for high-priced patented drugs, there are no incentives to find and test new uses for existing non-patented compounds. The reason is that if an innovator discovers a new use for an old drug, such as aspirin, the innovator would likely find it very difficult to make any profits from selling the drug. Even if the innovator could obtain a patent for the use of aspirin to treat some condition, competition in the product market would make it impossible to make profits from this patent. Given that clinical testing costs can run into the tens or hundreds of millions of dollars, the inability to make profits from existing non-patented compounds implies that they will not be tested. A good example of how this problem can operate is given by the story of Dr D. Faustman, whose approach to curing diabetes involves “an inexpensive, readily available drug.”
No pharmaceutical company has been willing to invest in clinical tests, in part because it would likely be impossible to earn substantial returns even if Dr Faustman’s approach turns out to be correct.
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