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R&D In The Pharmaceutical Industry: A World Of Small Innovation

  • Beatriz Dominguez
  • Juan-José Ganuza

    ()

  • Gerard Llobet

    ()

    (CEMFI, Centro de Estudios Monetarios y Financieros)

It is commonly argued that in recent years pharmaceutical companies have directed their R&D towards small improvements of existing compounds instead of more risky drastic innovations. In this paper we show that the proliferation of these small innovations is likely to be linked to the lack of market sensitivity of a part of the demand to changes in prices. Compared to their social contribution, small innovations are relatively more profitable than large ones because they are targeted to the smaller but more inelastic part of the demand. We also study the effect of regulatory instruments such as price ceilings, copyments and reference prices and extend the analysis to competition in research.

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Paper provided by CEMFI in its series Working Papers with number wp2006_0601.

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Date of creation: Jan 2006
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Handle: RePEc:cmf:wpaper:wp2006_0601
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