Market size and pharmaceutical innovation

This article quantifies the relationship between market size and innovation in the pharmaceutical industry using improved, and newer, methods and data. We find significant elasticities of innovation to expected market size with a point estimate under our preferred specification of 0.23. This suggest...

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Bibliographic Details
Published in:The Rand journal of economics 2015-12, Vol.46 (4), p.844-871
Main Authors: Dubois, Pierre, de Mouzon, Olivier, Scott-Morton, Fiona, Seabright, Paul
Format: Article
Language:English
Subjects:
Business innovation
Corporations
Cost estimates
Elasticity
Fixed costs
Gross domestic product
Humanities and Social Sciences
Innovation
Innovations
Investigational therapies
Market size
Market structure
Pharmaceutical industry
Pharmaceutical preparations
Product innovation
R&D
Research & development
Revenue
Studies
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Summary:This article quantifies the relationship between market size and innovation in the pharmaceutical industry using improved, and newer, methods and data. We find 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$1 billion per drug, and marginal costs of manufacture and distribution near 50%.
ISSN:0741-6261
1756-2171
DOI:10.1111/1756-2171.12113