Pharmaceutical Profits and the Social Value of Innovation

48 Pages Posted: 16 Jun 2014 Last revised: 25 Mar 2021

Date Written: June 2014

Abstract

Prior research has shown that exogenous shocks to the demand for medical products spur additional product development. These studies do not distinguish between breakthrough products and those that largely duplicate the performance of existing products. In this paper, we use a novel data set to explore the impact of the introduction of Medicare Part D on the development of new biotechnology products. We find that the law spurred development of products targeting illnesses that affect the elderly, but most of this effect is concentrated among products aimed at diseases that already have multiple existing treatments. Moreover, we find no increase in products targeting orphan disease or those receiving either fast track or priority review status from the FDA. This suggests that marginal changes in demand may have little effect on the development of products with large welfare benefits.

Suggested Citation

Dranove, David and Garthwaite, Craig L. and Hermosilla, Manuel, Pharmaceutical Profits and the Social Value of Innovation (June 2014). NBER Working Paper No. w20212, Available at SSRN: https://ssrn.com/abstract=2450913

David Dranove (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8682 (Phone)
847-467-1777 (Fax)

Craig L. Garthwaite

Northwestern University - Department of Management & Strategy ( email )

Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States

Manuel Hermosilla

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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