That shreds pharmaceutical innovation and results in unnecessary deaths. There’s a causal relationship between long trial times and a decrease in R&D funding.

Are short effective patent terms for some pharmaceuticals a problem in practice? As we have argued, there is tremendous empirical uncertainty about whether longer patent terms encourage innovation. This naturally raises the question: Would changes to effective patent terms have real effects on pharmaceutical investments? It is important to stress that our (preferred) justification for this proposed reform does not rest on an affirmative answer to that question. Rather, our preferred justification is more direct: the patent system is meant to provide uniform patent terms across inventions, but fails to do so in practice. Pharmaceutical markets are the obvious case where direct evidence of this failure exists, and there are practical policy levers that could address this failure without distorting other (nonpharmaceutical) markets. That said, we of course recognize that policymakers will be interested in whether the policy reform we are proposing would have real effects on pharmaceutical investments. While there is no definitive evidence on this question, the closest available evidence comes from Budish, Roin, and Williams (2015). The authors start by empirically establishing that longer commercialization lags are associated with less R&D investment in cancer drugs. As suggested by the two New England Journal of Medicine examples discussed above, clinical trials can be completed more quickly for late-stage cancers with low survival rates, such as recurrent and metastatic cancers, because differences in survival in a treatment group relative to a control group in a randomized trial can be observed more rapidly. Given that patents essentially must be filed before the start of clinical trials, late-stage cancer drugs thus receive longer effective patent terms than do early-stage cancer drugs that require lengthier clinical trials. As illustrated in figure 1, this difference in commercialization time correlates with the number of clinical trials conducted for different cancer stages. The same pattern holds when adjusting for measures of market size. Two additional empirical tests conducted by Budish, Roin, and Williams (2015) suggest that, when taken together, figure 1 reflects a distortion of private R&D investments in cancer drugs away from the ideal balance. First, the negative correlation between commercialization lags and R&D does not hold when firms are permitted to rely on surrogate endpoints for clinical trials (i.e., outcomes other than survival rates, which can be observed more quickly), suggesting that the relationship is causal rather than reflecting, for example, fewer scientific opportunities for early-stage treatments. Second, the observed negative correlation is stronger for private investments than it is for publicly funded research investments, suggesting again that the relationship does not merely reflect the lack of scientific opportunities to develop early-stage cancer drugs. As further support for this interpretation, all six FDA-approved cancer prevention drugs—the cancer drugs with the longest commercialization lags—either relied on surrogate endpoints or were approved by the FDA entirely on the basis of publicly funded clinical trials. What Budish, Roin, and Williams (2015) do not show is definitive evidence that longer effective patent terms would fix this distortion. As they discuss, at least one other potential mechanism—namely, private firms preferring to invest in projects that pay out over a short time horizon—could explain these results. While both mechanisms could merit a public policy response, reforms to Hatch–Waxman would only address the problems generated by the first mechanism. Even with that caveat, Budish, Roin, and Williams (2015) are nonetheless able to estimate that underinvestment by private firms in long-term cancer research—generated by either or both of these mechanisms—generates a quantitatively large loss in patient health. The authors estimate that, even focused solely on the subset of U.S. cancer patients diagnosed in 2003, this distortion generated around 890,000 lost life-years, which translates to a total net present value of life-years at stake of between $170 billion and $4.2  trillion. While these specific estimates should of course be taken with a grain (perhaps a spoonful) of salt, they suggest that this distortion is empirically important enough that policymakers should seriously consider potential reforms.