The Determinants of Pharmaceutical Research and Development Investments

Abstract

Our maintained hypothesis is that drug development responds to the intensity of consumer demand. We look at the distribution of drug development by disease and link this to the economic harm caused by disease as measured by mortality. Mortality data represent the net effect of human frailty and the efficacy of the existing drugs on the market. If people continue to die from a given condition then existing drugs are not perfect and there are potential profits from developing a more effective compound. We aggregate economic harm worldwide and into three broad regions: the United States, other developed countries, and underdeveloped countries. We find that economic harm motivates the distribution of drug development across diseases, but it is economic harm in the United States alone that matters.

Market size and innovation: Effects of Medicare Part D on pharmaceutical research and development

“…Thus, given the lower expected profit per consumer and greater uncertainty about future profits and prices, firms’ R&D decisions are likely to be less responsive to a unit change in expected revenues for all these countries combined versus the same unit change in the U.S. market (Sood et al, 2009). Along these lines, elasticity of innovation to global demand might be smaller than the elasticity of innovation to U.S. demand if—as Civan and Maloney (2006) assert—the pharmaceutical industry is only responsive to changes in intensity of U.S. demand. It is therefore understandable that Dubois et al find a lower elasticity than we and Acemoglu and Linn do, focusing on the U.S..…”

Does Targeted, Disease‐Specific Public Research Funding Influence Pharmaceutical Innovation?

“…In contrast, Toole () found that disease‐related deaths and severity of illness, specifically as measured by contemporaneous mortality rates and hospitalizations, seem to have no partial effect on industry′s R&D expenditures, after controlling for NIH R&D funding and industry sales. And, although Civan and Maloney's () cross‐sectional analysis did find that YLLs were more predictive of industry R&D than simple mortality, that analysis did not control separately for prevalence or market size, and it did not include NIH R&D funding among the covariates. As long as severity of illness (as measured by DALYs) has no additional predictive value for drug development—that is, no partial effect on drug development after controlling for (a) time‐invariant heterogeneity across drug classes, (b) growth in potential market size (i.e., the number of potential customers, prevalence, etc.…”

“…In addition, over half of IMS’ () projected growth in patent‐protected branded drugs by 2015 is due to price increases, mostly in the United States. Thus, it is not particularly surprising that Civan and Maloney () found pharmaceutical R&D is essentially driven by intensity of demand among U.S. consumers. For these reasons, year‐on‐year percentage growth in potential market size in the United States provides a reasonable proxy for near‐term overall market growth for originator firms’ branded, patent‐protected products.…”

Pharmaceutical innovation and longevity growth in 30 developing and high-income countries, 2000–2009

“…But most countries are "small open economies" 9 with respect to pharmaceutical innovation: they participate in international trade of pharmaceutical products, but are small enough that they have little effect on global drug development. Civan and Maloney (2006) found that global drug development depends only on the size of the U.S. market, not the sizes of markets in other high-income or developing countries; Lichtenberg (2005a) obtained similar results. Longevity growth in most countries (even countries with large populations such as Indonesia and Mexico) is therefore likely to have a negligible effect on the number of new drugs used by their residents.…”