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Decline In Economic Returns From New Drugs Raises Questions About Sustaining Innovations

  1. Ernst R. Berndt is the Louis E. Seley Professor in Applied Economics at the Alfred P. Sloan School of Management, Massachusetts Institute of Technology, in Cambridge.
  2. Deanna Nass is a senior researcher at the IMS Institute for Healthcare Informatics, in Plymouth Meeting, Pennsylvania.
  3. Michael Kleinrock is director of research development for the IMS Institute for Healthcare Informatics.
  4. Murray Aitken ( [email protected] ) is executive director of the IMS Institute for Healthcare Informatics.
PUBLISHED:No Accesshttps://doi.org/10.1377/hlthaff.2014.1029

The sales and financial returns realized by pharmaceutical companies are a frequent topic of discussion and debate. In this study we analyzed the economic returns for four cohorts of new prescription drugs launched in the United States (in 1991–94, 1995–99, 2000–04, and 2005–09) and compared fluctuations in revenues with changing average research and development (R&D) and other costs to determine patterns in rewards for pharmaceutical innovation. We found that the average present values of lifetime net economic returns were positive and reached a peak with the 1995–99 and 2000–04 new drug cohorts. However, returns have fallen sharply since then, with those for the 2005–09 cohort being very slightly negative and, on average, failing to recoup research and development and other costs. If this level of diminished returns persists, we believe that the rewards for innovation will not be sufficient for pharmaceutical manufacturers to maintain the historical rates of investments needed to sustain biomedical innovation.

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