The Future Costs, Risks and Rewards of Drug Development: The Economics of Pharmacogenomics

This article discusses the evolving field of pharmacogenomics, which is the science of using genomic markers to predict drug response, and how it may impact the future costs, risks and returns to pharmaceutical research and development (R&D). We uncover a number of factors and issues that are likely to influence the expected returns and, hence, the incentive to invest in new pharmaceutical R&D in tandem with the development of pharmacogenomics. Specifically, we identify how pharmacogenomics may lower the cost of drug development by shortening drug development times. Thus, pharmacogenomics may lead to an increase in a drug's effective patent life, and may also increase the demand and adoption rate for new products. For these and other reasons, pharmacogenomics may one day enhance expected future returns to R&D, leading to higher levels of R&D investment and an increased pace of pharmaceutical innovation. Our conclusions must be read with much caution, however, as there is considerable uncertainty as to how the area will evolve, both clinically and economically. The time horizon necessary for the science to develop and be adopted into clinical practice is not clear. Nevertheless, we think the issues and factors outlined in this article shed light on possible future economic outcomes and changes in the industry's structure, conduct and performance. Hopefully, this will provide researchers with avenues to pursue regarding a better understanding of the economics of pharmacogenomics.