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FDA New Drug Approval Times, Prescription Drug User Fees, and R & D Spending

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  • Golec, Joseph H.
  • Lutter, Randall
  • Nardinelli, Clark
  • Vernon, John
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    Abstract

    FDA-approval times have declined significantly since the enactment of the Prescription Drug User Fee Act (PDUFA) in 1992. As a result, present value expected returns to pharmaceutical R&D have likely increased. In the current paper we employ a unique survey dataset, which includes for the first time data on firm-level pharmaceutical R&D. We estimate the effects that FDA-approval times have on R&D investments. Controlling for other factors such as pharmaceutical profitability and cash flows, we find that a 10 percent decrease (increase) in FDA-approval times results in a 1.7 percent in increase (decrease) in R&D spending.Combining this estimate with previous research and publicly available data on industry-level pharmaceutical spending between 1992 and 2001, we conclude PDUFA, and its subsequent renewals, stimulated an additional $13.5 billion in pharmaceutical R&D (2005 $U.S.), and has presumably continued to do so since 2001. Recent economic research has shown the social rate of return on pharmaceutical R&D is remarkably high; thus, the social benefits of PDUFA (over and above the benefits of more rapid consumer access) are likely to be substantial.

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    Bibliographic Info

    Paper provided by Regulation2point0 in its series Working paper with number 212.

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    Date of creation: Sep 2006
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    Handle: RePEc:reg:wpaper:212

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    1. 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.
    2. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    3. Abbott, Thomas III, 1995. "Price regulation in the pharmaceutical industry: Prescription or placebo?," Journal of Health Economics, Elsevier, vol. 14(5), pages 551-565, December.
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    Cited by:
    1. Simanjuntak, Destrina Grace & Tjandrawinata, Raymond R., 2011. "A study on influencers of total sales revenue of generic pharmaceutical companies in Indonesia," MPRA Paper 31628, University Library of Munich, Germany.
    2. Allan Begosh & John Goldsmith & Ed Hass & Randall W. Lutter & Clark Nardinelli & John A. Vernon, 2006. "Black Box Warnings and Drug Safety: Examining the Determinants and Timing of FDA Warning Labels," NBER Working Papers 12803, National Bureau of Economic Research, Inc.

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