Market size and pharmaceutical innovation

Pierre Dubois, Olivier de Mouzon, Fiona Scott-Morton and Paul Seabright

RAND Journal of Economics, 2015, vol. 46, issue 4, 844-871

Abstract: type="main">

This article quantifies the relationship between market size and innovation in the pharmaceutical industry using improved, and newer, methods and data. We find significant elasticities of innovation to expected market size with a point estimate under our preferred specification of 0.23. This suggests that, on average, $2.5 billion is required in additional revenue to support the invention of one new chemical entity. This magnitude is plausible given recent accounting estimates of the cost of innovation of $800 million to $1 billion per drug, and marginal costs of manufacture and distribution near 50%.

Date: 2015
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Related works:
Working Paper: Market Size and Pharmaceutical Innovation (2014)
Working Paper: Market Size and Pharmaceutical Innovation (2014)
Working Paper: Market Size and Pharmaceutical Innovation (2011)
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