Document Type

Article

Publication Date

2021

Abstract

The pharmaceutical industry has long argued that high drug prices reflect the high cost of innovation and that reducing drug prices would necessarily slow the pipeline of new drugs. These arguments have been bolstered by studies of large pharmaceutical companies showing statistical associations between the projected market size or revenue for pharmaceutical products and research & development (R&D) activity. Our analysis recognizes the increasingly important role of small biopharmaceuticals in drug development , companies that typically have lit t le revenue and negative earnings, but are now responsible for more than 40% of new drug approvals.

We examine the relationship between changes in revenue and R&D for companies of different size f rom 2000-2018.While changes in R&D expense correlate with changes in revenue for the largest biopharmaceutical companies (>$7B market cap), no such relationship is found for smaller companies. Modeling the impact of differential cost reductions on the pipeline of new products, we find that any negative impact of drug price reductions may be mitigated through strategic allocation of cost reductions by large companies to different stages of clinical development .

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