Market Size and Pharmaceutical Innovation
AbstractThis paper quanti es the relationship between market size and innovation in the pharmaceutical industry. We estimate the elasticity of innovation, as measured by the number of new chemical entities appearing on the market for a given disease class, to the potential market size represented by the willingness of su¤erers of diseases in that class (and others acting on their behalf such as insurers and governments) to spend on their treatment during the patent lifetime. We nd positive signi cant elasticities with a point estimate under our preferred speci cation of 25.2%. This suggests that at the mean market size an additional $1.8 billion is required in additional patent life revenue to induce the invention of one additional new chemical entity. An elasticity substantially and signi cantly below one-half is also a plausible implication of the hypothesis that innovation in pharmaceuticals is becoming more di¢ cult and expensive over time, as costs of regulatory approval rise and as the industry runs out of "low hanging fruit".
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Bibliographic InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 670.
Date of creation: Apr 2011
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Innovation; Market Size; Elasticity; Pharmaceuticals;
Other versions of this item:
- de Mouzon, Oliver & Dubois, Pierre & Scott Morton, Fiona & Seabright, Paul, 2011. "Market Size and Pharmaceutical Innovation," CEPR Discussion Papers 8367, C.E.P.R. Discussion Papers.
- Dubois, Pierre & de Mouzon, Olivier & Scott Morton, Fiona & Seabright, Paul, 2011. "Market Size and Pharmaceutical Innovation," TSE Working Papers 11-232, Toulouse School of Economics (TSE).
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- O34 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-28 (All new papers)
- NEP-COM-2011-11-28 (Industrial Competition)
- NEP-CSE-2011-11-28 (Economics of Strategic Management)
- NEP-HEA-2011-11-28 (Health Economics)
- NEP-IND-2011-11-28 (Industrial Organization)
- NEP-INO-2011-11-28 (Innovation)
- NEP-IPR-2011-11-28 (Intellectual Property Rights)
- NEP-TID-2011-11-28 (Technology & Industrial Dynamics)
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