The Effect of Price on Pharmaceutical R&D

Abstract

This work extends prior research that finds drug development is driven by demand factors such as mortality rates of the diseases new drugs are aimed at. Here we find that the number of drugs in the development pipeline is strongly positively related to the price of existing drugs treating those diseases. This gives us a direct price elasticity measure from which we can draw some inference about the effect on new drug development that might occur if the pricing regime in the United States were to change.

Advance Market Commitments for R&D in Diseases That Disproportionately Affect Low‐Income Countries

“…The author argues that for every $1 increase in annual expected market revenue for vaccines stimulates, annually, an additional $0.06 in discounted present value (PV) of expenditures on new clinical trials. A similar dynamic effect is reported by Civan and Maloney () who found that the higher the retail price of existing drugs that have no generic competitors (a proxy of the expected price of a new drug) in a given therapeutic category, the higher the number of drugs in the development pipeline for that therapeutic category. Holding disease incidence and severity (a proxy of demand for NMEs) constant, a 50% reduction in the expected price is associated with as much as 25% reduction in the number of drugs in the development pipeline.…”

Patents as a Spur to Subsequent Innovation? Evidence from Pharmaceuticals

“…Civan and Maloney (2009) show that that early stage investment is positively correlated with the price of approved drugs in the same therapeutic area, and concurrent work by Branstetter, Chatterjee, and Higgins (2014) shows generic entry in a therapeutic area is associated with declines in early stage investment. This research supports the thrust of my findings.…”

Market size and pharmaceutical innovation

“…Lichtenberg () finds a result of similar magnitude to that of Giacotto, Santerre, and Vernon (): a 1% increase in the number of people with cancer leads to a .58% increase in chemotherapy regimens. Civan and Maloney () find that a 1% increase in expected US entry price leads to .5% increase in the number of drugs in the drug development pipeline. Lichtenberg () finds that a 1% increase in DALY leads to a 1.3% increase in global drug launches.…”

“…Innovation has also been measured by numbers of relevant journal articles or disease regimens (Lichtenberg, 2005). Similarly, there have been many different measures of potential market size, including (negative) disability-adjusted life years (DALY) and mortality (Lichtenberg, 2005;Civan and Maloney, 2009). Lichtenberg (2005) finds a result of similar magnitude to that of Giacotto, Santerre, and Vernon (2005): a 1% increase in the number of people with cancer leads to a .58% increase in chemotherapy regimens.…”