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Duke Economics Working Paper #95-39
Price and Profit Control, New Competitive Dynamics
and the Economics of Innovation in the Pharmaceutical Industry
Henry G. Grabowski
Abstract
The focus of this paper is the economics of the pharmaceutical
R&D process. Major developments currently impacting the industry
include the fact that R&D costs for new drugs are rising very
rapidly. Product life cycles are also shortening, meaning there
is less time to recover R&D costs and other investment expenditures.
Firms are increasingly dependent on a small number of "blockbuster"
products to finance future research and development.
This paper provides an overview of several factors influencing
the environment for pharmaceutical R&D: trends in costs and product
life cycles, returns from new drug introductions, and the consequences
of price and profit controls on incentives.
JEL: O34
Published in Symposium on Industrial Policy and the Pharmaceutical
Industry,
Adrian Towse, ed. London: Office of Health Economics, 1995, pp. 77-91.