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Pharmaceutical Innovation

In: Handbook of the Economics of Innovation

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  • Scherer, F.M.

Abstract

This chapter 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 supranormal returns on investment realized by pharmaceutical companies, and the puzzling economic welfare implications are investigated.

Suggested Citation

  • Scherer, F.M., 2010. "Pharmaceutical Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 539-574, Elsevier.
  • Handle: RePEc:eee:haechp:v1_539
    DOI: 10.1016/S0169-7218(10)01012-9
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    Cited by:

    1. Comanor, William S. & Scherer, F.M., 2013. "Mergers and innovation in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 32(1), pages 106-113.
    2. Billette de Villemeur, Etienne & Versaevel, Bruno, 2019. "One lab, two firms, many possibilities: On R&D outsourcing in the biopharmaceutical industry," Journal of Health Economics, Elsevier, vol. 65(C), pages 260-283.
    3. Nakamura, Hiroshi & Wakutsu, Naohiko, 2020. "Reducing Reimbursement Drug Price Risk to Enhance R&D Incentives without Raising Drug Prices/Expenditures: Implications of Simulations Based on Questionnaire Survey of Pharmaceutical Companies in Japa," Health Policy, Elsevier, vol. 124(7), pages 714-720.
    4. Scherer, F. M., 2015. "First Mover Advantages and Optimal Patent Protection," Working Paper Series rwp14-053, Harvard University, John F. Kennedy School of Government.
    5. Scherer, F. M., 2013. "The F.T.C., Oligopoly, and Shared Monopoly," Working Paper Series rwp13-031, Harvard University, John F. Kennedy School of Government.
    6. Kloyer, Martin & Scholderer, Joachim, 2012. "Effective incomplete contracts and milestones in market-distant R&D collaboration," Research Policy, Elsevier, vol. 41(2), pages 346-357.
    7. Younes, George Abi & Ayoubi, Charles & Ballester, Omar & Cristelli, Gabriele & de Rassenfosse, Gaetan & Foray, Dominique & Gaule, Patrick & Pellegrino, Gabriele & van den Heuvel, Matthias & Webster, B, 2020. "COVID-19_Insights from Innovation Economists," SocArXiv b5zae, Center for Open Science.
      • Dominique Foray & Gaetan de Rassenfosse & George Abi Younes & Charles Ayoubi & Omar Ballester & Gabriele Cristelli & Matthias van den Heuvel & Ling Zhou & Gabriele Pellegrino & Patrick Gaulé & Elizab, 2020. "COVID-19: Insights from Innovation Economists," Working Papers 10, Chair of Innovation and IP Policy.
    8. Gamba, Simona, 2017. "The Effect of Intellectual Property Rights on Domestic Innovation in the Pharmaceutical Sector," World Development, Elsevier, vol. 99(C), pages 15-27.

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