The Problem of New Uses

Discovering new uses for drugs that are already on the market seems like it ought to be the low-lying fruit of biopharmaceutical research and development (R&D). Firms have already made significant investments in developing these drugs and bringing them to market, including testing them in clinical trials, shepherding them through the FDA regulatory approval process, building production facilities, and training sales staff to market them to physicians. By this point, the drugs have begun to enjoy goodwill among patients and physicians and casual observations in the course of clinical experience may point to potential new uses. One might expect that firms would be well-motivated to invest in the further clinical trials necessary to market their products for new uses.

But in practice, the legal and economic environment for drug development complicates firms' incentives to pursue this research. Examining the problem of motivating firms to invest in rigorous testing of new uses for previously approved drugs provides an interesting window on this environment.