Back to Basics: First Principles in Intellectual Property Policy in the Life Sciences
Abstract
This chapter contribution develops a framework for understanding how intellectual property rights facilitate biopharmaceutical innovation and entrepreneurship through two core functions: attracting investment in original-drug development and enabling coordination among differently specialized entities throughout the drug-development cycle. In light of long development lag times, high failure rates, and the exceptional gap between innovation and imitation costs, robust exclusivity is essential to attract investment capital to support the research, testing, production, and distribution stages of original-drug development. IP rights also mitigate the expropriation risks inherent to transacting over informational goods, allowing research entities, startups, investors, and pharmaceutical companies to implement a division of labor that generates specialization efficiencies and lowers entry costs for biotech entrepreneurs. The historical development of the US biotech market, and the vertical disintegration of the biopharmaceutical supply chain concurrently with the strengthening and adoption of patent rights, illustrates these functions in action. Based on the observed performance of real-world biopharmaceutical markets, the Chapter presents “first principles” for designing IP policies that can facilitate both technological and transactional innovation in the life sciences ecosystem.
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