1 option
The Cost of US Pharmaceutical Price Reductions: A Financial Simulation Model of R&D Decisions / Thomas A. Abbott, John A. Vernon.
- Format:
- Book
- Author/Creator:
- Abbott, Thomas A.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w11114.
- NBER working paper series no. w11114
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Other Title:
- The Cost of US Pharmaceutical Price Reductions
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2005.
- Summary:
- Previous empirical studies that have examined the links between pharmaceutical price controls, profits, cash flows, and investment in research and development (R&D) have been largely based on retrospective statistical analyses of firm- and/or industry-level data. These studies, which have contributed numerous insights and findings to the literature, relied upon ad hoc reduced-form model specifications. In the current paper we take a very different approach: a prospective micro-simulation approach. Using Monte Carlo techniques we model how future price controls in the U.S. will impact early-stage product development decisions in the pharmaceutical industry. This is done within the context of a net present value (NPV) framework that appropriately reflects the uncertainty associated with R&D project technical success, development costs, and future revenues. Using partial-information estimators calibrated with the most contemporary clinical and economic data available, we demonstrate how pharmaceutical price controls will significantly diminish the incentives to undertake early-stage R&D investment. For example, we estimate that cutting prices by 40 to 50 percent in the U.S. will lead to between 30 to 60 percent fewer R&D projects being undertaken (in early-stage development). Given the recent legislative efforts to control prescription drug prices in the U.S., and the likelihood that price controls will prevail as a result, it is important to better understand the firm response to such a regulatory change.
- Notes:
- Print version record
- February 2005.
The Penn Libraries is committed to describing library materials using current, accurate, and responsible language. If you discover outdated or inaccurate language, please fill out this feedback form to report it and suggest alternative language.