Research Profile

Tuesday, 14 August 2012

More regulation will not encourage innovation


Unsurprisingly given the state of the world economy there have been a number of pieces asking questions about the ability of large corporations to innovate - see for example Felix Salmon on Reuters (http://t.co/V31EDyhn).

However the most recent I have seen is Peter Wilby's piece in the Guardian (http://bit.ly/Ryp78U). His diagnosis is that business, particularly "big pharma", is suffering from an innovation crisis that can be cured by additional regulation. He suggests that this would steer "rent-seekers" away from marketing and PR toward research and development and consequently job creating and socially beneficial technologies. In my opinion more regulation is unlikely to stimulate innovation in big companies.

The development of new therapeutics remains a high risk and expensive business, despite the huge increase in our knowledge of human physiology and disease. The cost of failure is substantial, and the opportunities to make a return are generally limited to the lifetime of patents. The expectation of our society is that we will increasingly develop personalised treatment regimes for acute and chronic conditions in an ageing population. Thus, with the days of the blockbuster drug numbered, new therapeutics will individually deliver more modest returns, but without any immediate prospect for a concomitant reduction in the costs of development, some of which are directly attributable to over-regulation. This may provide the stimulus for innovation, but it is also possible that shareholders, investors and business people, will decide that there are less risky ways to make a return on investment.

There is no doubt that we need to encourage a greater appetite for creativity and innovation, and that removing incentives to other patterns of behaviour are important. However for complex areas of societal importance and public concern such as healthcare, we need to ensure that there is a credible and sustainable business model. That means incentivising innovation, removing unnecessary regulatory barriers, sharing the risk between the public and private sector and ensuring that there is sufficient opportunity for investors to make a return. In the absence of such thinking we will be unable to promote the level of innovation required to address the complex challenges of modern society.

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