Market Size and Pharmaceutical Innovation

Dubois, Pierre, De Mouzon, Olivier, Scott Morton, Fiona and Seabright, Paul (2015) Market Size and Pharmaceutical Innovation. RAND Journal of Economics, 46 (4). pp. 844-871.

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Official URL: http://tse-fr.eu/pub/28957

Abstract

This paper quantifies the relationship between market size and innovation in the pharmaceutical industry using improved, and newer, methods and data. We find positive significant elasticities of innovation to expected market size with a point estimate under our preferred specification of 0.23. This suggests that, on average, $2.5 billion is required in additional revenue to support the invention of one new chemical entity. This magnitude is plausible given recent accounting estimates of the cost of innovation of 800 million to one billion per drug, and marginal costs of manufacture and distribution near 50%. An elasticity below 1 is also a plausible implication of the hypothesis that innovation in pharmaceuticals is becoming more difficult over time, as costs of regulatory approval rise and as the industry runs out of "low-hanging fruit".

Item Type: Article
Language: English
Date: 2015
Refereed: Yes
Uncontrolled Keywords: Innovation, Market Size, Elasticity, Pharmaceuticals
JEL codes: L65 - Chemicals; Rubber; Drugs; Biotechnology
O31 - Innovation and Invention - Processes and Incentives
O34 - Intellectual Property Rights - National and International Issues
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:55
Last Modified: 24 Jan 2019 00:10
OAI ID: oai:tse-fr.eu:28957
URI: http://publications.ut-capitole.fr/id/eprint/16676

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