The roots of medical innovation

In a much-praised piece, Jon Cohn argues that the NIH, not commercial incentives, is the key to American medical innovation.  He writes:

The great breakthroughs in the history of medicine, from the development of the polio vaccine to the identification of cancer-killing agents, did not take place because a for-profit company saw an opportunity and invested heavily in research. They happened because of scientists toiling in academic settings. "The nice thing about people like me in universities is that the great majority are not motivated by profit," says Cynthia Kenyon, a renowned cancer researcher at the University of California at San Francisco. "If we were, we wouldn't be here." And, while the United States may be the world leader in this sort of research, that's probably not--as critics of universal coverage frequently claim--because of our private insurance system. If anything, it's because of the federal government.

The single biggest source of medical research funding, not just in the United States but in the entire world, is the National Institutes of Health (NIH): Last year, it spent more than $28 billion on research, accounting for about one-third of the total dollars spent on medical research and development in this country (and half the money spent at universities).

A few points should be made:

1. The strength of American medical innovation stems from the combination between the NIH, private philanthropy, and commercial incentives.  Cohn has lots of (just) praise for the NIH, as basic research is often a public good.  But he doesn't say enough about philanthropy, and he confuses pro-NIH evidence with showing the superfluity of commercial incentives.

2. Send some flowers to Cynthia Kenyon, whom I could not personally quote in this manner with a straight face.  You would never know that universities are profiting from drugs, and patenting them, at an unprecedented rate.  Universities are also forming partnerships with drug companies at an unprecedented rate. 

3. Companies must work very hard to translate basic research into usable applied form and the U.S. is a clear world leader in this regard.  A drug idea is not the same as a drug.  Cohn at times admits this, but is he really denying that the supply curve here slopes upward with regard to expected profits?  You can cite all kind of "mixed" factors about commercial incentives but at the end of the day that is the basic question.

4. Statins, Prozac, and anti-AIDS drugs are notable examples of #1.  Or try this list of Merck products.  Merck and Pfizer are much more than simply marketing or doctor bribery machines, although admittedly they are that too. 

5. The standard arguments against commercial "me-too" drugs are considerably overrated.

6. FDA restrictions are at least partly responsible for the costly, overly concentrated, and blockbuster-oriented nature of U.S. and other pharmaceutical companies.  Tight regulations discriminate against the small company and the small idea.  Even if you think tight regulations are a good idea, don't blame these tendencies on the big bad corporations.

7. It is odd for Cohn to cite me as his libertarian foil, since the referenced piece very clearly cites the NIH as a critical factor behind American medical innovation.  This odd citation again represents the desire to replace "anti-commercial" arguments with an easier-to-make "pro-NIH" case.

9. The NIH works as well as it does because the money is mostly protected from Congress.  It is not a success which can easily be replicated.  The more money is at stake, the more Congress wants to influence allocation.  We should guard this feature of the system jealously and try to learn from it.  If we can.

The bottom line: Arguments for the NIH are not arguments against the importance of commercial incentives for medical innovation.

Addendum: Read Clive Crook too.