Active Ingredients: Exploring the Key Factors Affecting the Rising Cost of Developing New Drugs

Sarah J. Fossett () and Phanindra Wunnava
Additional contact information
Sarah J. Fossett: Credit Suisse

No 10817, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: What makes prescription drugs cost so much? The media and Congress say it is corporate greed, while pharmaceutical firms blame federal regulations and an expensive drug development process. This study focuses on R & D (R&D) expenditures at global pharmaceutical firms and explores the driving factors behind what makes R&D for prescription drugs so costly. By combining variables that represent the news media's claims (i.e. CEO compensation) and the pharmaceutical firms' rebuttals (i.e. late-stage drug development), this study attempts to add empirical evidence to the growing debate surrounding the high and rising cost of prescription drugs. The results suggest that there is some truth to both sides of the argument- specifically; both CEO compensation and phase II development are positively correlated with R & D expenditures. However, we have reason to believe that CEO compensation is more of an indicator of business strategy than greed. Finally, this study proposes possible research extensions for continued study.

Keywords: employee effect; prescription drugs; CEO compensation; drug development; price earnings ratio; profitability; Research & Development (search for similar items in EconPapers)
JEL-codes: I11 J33 L10 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2017-06
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published - published in: International Journal o Health Sciences, 2019, 7 (3), 1 - 18

Downloads: (external link)
https://docs.iza.org/dp10817.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp10817

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().