Patents are a big deal in the drug world, and it's easy to see why. Back in 2001, the Tufts Center for the Study of Drug Development estimated the average cost of developing a new molecular entity was a staggering $802 million. That kind of cash isn't easy to come by, and without patents to protect intellectual property, innovators are less likely to take the risks needed to create tomorrow's medicines.
It's important to keep these facts in mind when evaluating the U.S. Supreme Court's recent decision on the use of patented compounds in drug research. In a lower court case, Integra LifeSciences
Many are heralding the decision as a win for the public because it may speed the development of new treatments. In fact, the outcome is not so clear. The case certainly is a huge victory for large drug makers like Eli Lilly
However, for aspiring blockbuster developers, especially fledgling biotech and small pharma outfits that are not yet profitable, the ruling is far from a boon. In many cases licensing fees keep these outfits afloat as they dare to tread in research areas that the more established firms spurn as too risky. Now, larger players can quickly take advantage of this risk-taking when it pays off. Smaller companies, with their limited resources, just don't have the research dollars to compete.
At worst, the Supreme Court ruling could completely squelch risk-taking by biotech and small pharma upstarts. But even if this doomsday scenario doesn't hold true, the smaller companies could have more trouble maintaining their independence after the patent expires on the first truly innovative drug they create.
Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.