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THE HUNT FOR BIOMEDICAL INNOVATION

Perhaps as never before, countries around the world are looking at biomedical innovation as a source of (1) knowledge creation by their scientific communities, (2) value creation for their populations, and (3) wealth creation by fostering industries and expansion of employment. In the United States, for example, bipartisan passage of the 21st Century Cures Act (2016) seeks to accelerate new product development and faster patient access to new treatments and therapies. It also elevates the role of biomedical research through an additional $6.3 billion in funding for the National Institutes of Health (NIH) and other agencies. China’s Twelfth and Thirteenth Five-Year Plans (FYP 2011-2015, 2016-2020) emphasize a shift away from manufacturing to higher-end technology sectors such as biotechnology, biomedical and advanced medical equipment, and information technology. China is also on pace to surpass the United States in terms of research funding levels, indicating biomedical innovation is a national priority.1

At the same time, countries around the world are looking at the price tag for these new biomedical innovations. Not only is healthcare a rising percentage of every country’s gross domestic product (GDP), but inflation in the prices of biomedical innovation often outstrips the rate of increase in spending on healthcare services. Newspaper headlines now commonly display the annual cost of new biotechnology treatments to patients and their insurers. Recently, Novartis announced that its new gene therapy (AVXS-101) to treat spinal muscular atrophy in newborns could be valued as much as $4 million per patient (although it did not say it would charge this price). This follows on the heels of Novartis pricing its drug Kymriah (based on CAR-T technology) to treat acute lymphoblastic leukemia in children at $475,000, and Spark Therapeutics’s decision to price its new drug for blindness, Luxturna, at $850,000 for a one-time treatment.

These 2 observations underlie the tension every country faces between the benefits of technological innovation and the affordability of such innovation (similar to the iron triangle). There are now multiple calls for “an effective innovation agenda” that calls for, among other things, greater coordination among government agencies responsible for funding and paying for this innovation.2 This chapter (and the next 4) seek to inform this discussion by focusing on the sources of that innovation and the industrial context in which it occurs.

INNOVATION IN THE HEALTHCARE VALUE CHAIN

Innovation occurs in the context of industrial value chains. A value chain is defined as the string of firms and industries (sellers) whose outputs serve as the inputs of other firm and industries downstream (buyers). Thus, in a traditional production model, a value chain links together raw material suppliers, manufacturers, distributors, and end customers. Using raw materials from their own suppliers, product manufacturers design and make innovative products and then market them to downstream end-users. This chapter examines the producers of innovative products found in the right-hand ...

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