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Pharmaceutical Innovation

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  • Scherer, F. M.

    (Harvard U)

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    Abstract

    This article, written for the forthcoming Handbook of the Economics of Technical Change, surveys the costs, risks, and challenges encountered in the discovery and development of superior new pharmaceuticals. The changing methods by which drugs are discovered, the links between companies and academic science, the changing character of public regulation, and the sharp rise in the cost per new approved drug are analyzed. Determining which new drugs are both efficacious and safe poses classic statistical decision theory problems. Why patents are so important to drug developers is explored. A rent-seeking theory of new drug development is proposed to rationalize the high gross margins but only slightly supra-normal returns on investment realized by pharmaceutical companies, and the economic welfare implications are investigated.

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    Bibliographic Info

    Paper provided by Harvard University, John F. Kennedy School of Government in its series Working Paper Series with number rwp07-004.

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    Date of creation: Feb 2007
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    Handle: RePEc:ecl:harjfk:rwp07-004

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    1. Cockburn, Iain. & Henderson, Iain., 1994. "Racing to invest? : the dynamics of competition in ethical drug discovery," Working papers 3710-94., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. George J. Stigler, 1968. "Price and Non-Price Competition," Journal of Political Economy, University of Chicago Press, vol. 76, pages 149.
    3. Scherer, F. M. & Harhoff, Dietmar, 2000. "Technology policy for a world of skew-distributed outcomes," Research Policy, Elsevier, vol. 29(4-5), pages 559-566, April.
    4. Mansfield, Edwin, 1998. "Academic research and industrial innovation: An update of empirical findings1," Research Policy, Elsevier, vol. 26(7-8), pages 773-776, April.
    5. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
    6. F. M. Scherer, 2004. "A Note on Global Welfare in Pharmaceutical Patenting," The World Economy, Wiley Blackwell, vol. 27(7), pages 1127-1142, 07.
    7. Spence, Michael, 1976. "Product Selection, Fixed Costs, and Monopolistic Competition," Review of Economic Studies, Wiley Blackwell, vol. 43(2), pages 217-35, June.
    8. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G. & Lasagna, Louis, 1991. "Cost of innovation in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 10(2), pages 107-142, July.
    9. Cockburn, Iain M & Henderson, Rebecca M, 1998. "Absorptive Capacity, Coauthoring Behavior, and the Organization of Research in Drug Discovery," Journal of Industrial Economics, Wiley Blackwell, vol. 46(2), pages 157-82, June.
    10. Thomas R. Stauffer, 1971. "The Measurement of Corporate Rates of Return: A Generalized Formulation," Bell Journal of Economics, The RAND Corporation, vol. 2(2), pages 434-469, Autumn.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Chart of the day: is pharmaceutical innovation running dry?
      by Adam Ozimek in Modeled Behavior on 2010-06-10 11:23:16

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