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Pharmaceutical Innovation

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  • Scherer, Frederic
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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 progressive discovery and development of 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 puzzling economic welfare implications are investigated.

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    Bibliographic Info

    Paper provided by Regulation2point0 in its series Working paper with number 547.

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    Date of creation: Jun 2007
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    Handle: RePEc:reg:wpaper:547

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    1. Zucker, Lynne G & Darby, Michael R & Armstrong, Jeff, 1998. "Geographically Localized Knowledge: Spillovers or Markets?," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 65-86, January.
    2. 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.
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