Pharmaceutical Profits and the Social Value of Innovation

Abstract

Prior research has shown that exogenous shocks to the demand for medical products spur additional product development. These studies do not distinguish between breakthrough products and those that largely duplicate the performance of existing products. In this paper, we use a novel data set to explore the impact of the introduction of Medicare Part D on the development of new biotechnology products. We find that the law spurred development of products targeting illnesses that affect the elderly, but most of this effect is concentrated among products aimed at diseases that already have multiple existing treatments. Moreover, we find no increase in products targeting orphan disease or those receiving either fast track or priority review status from the FDA. This suggests that marginal changes in demand may have little effect on the development of products with large welfare benefits.

The Market Impacts of Pharmaceutical Product Patents in Developing Countries: Evidence from India

“…Similar to this previous work, an analysis of our data provides little evidence to suggest that the pace of new molecule introduction accelerated as a result of India's adopting a TRIPS-compliant patent system. This could result from innovative efforts not responding to changes in expected profits, but previous evidence from profit shocks in the developed world suggest otherwise (Acemoglu and Linn 2004;Finkelstein 2004;Dranove, Garthwaite, and Hermosilla 2014). Our results strongly suggest that the lack of an innovation response likely stems from at best small changes in expected profits.…”

“…However, she finds little change in patenting activity, which suggests that these trials are not the result of advances in basic science. Similarly,Dranove, Garthwaite, and Hermosilla (2014) found that the expansion of Medicare Part D increased clinical trial activity but that most of the new products targeted diseases that already had many existing treatments. Both of these studies suggest that investments in therapeutically innovative products are not particularly sensitive to policy-induced demand shocks.…”

Patents, Data Exclusivity, and the Development of New Drugs

“…Originators differ across various dimensions with potential implications for their drug development activities (Arora et al, 2009;Dranove et al, 2014) and their behavior in opposition proceedings (Harhoff and Reitzig, 2004;Harhoff et al, 2016). Most importantly, we construct a size classification based on the number of parallel development projects a company is involved in at the time of the opposition outcome.…”

Insurance and the High Prices of Pharmaceuticals

“…7 However, understanding the welfare implications of this bene…t requires carefully considering the optimal pricing response of pharmaceutical …rms. 8 These potential pricing decisions can be quite meaningful and failing to consider the supply side response to health insurance therefore can have important welfare implications. For example, it is di¢ cult to imagine that Gilead would charge anywhere near $84,000 for Sovaldi were it not covered by insurance and therefore the existence of insurance for this product has clear implications for access and pricing.…”