The Changing Economics of Medical Technology (1991) / Chapter Skim
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Appendix B: The Economics of Pharmaceutical Research and Development: An Industry Persepective
Appendix B: The Economics of Pharmaceutical Research and Development: An Industry Persepective
Pages 181-191
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From page 181... ...
SPIEGEL, JR. The purpose of this commentary is not to provide a complete view of all the risks, rewards, decisions, and debates inherent in research investment and drug development in the pharmaceutical industry, but instead to provide a personal perspective based on 25 years of wrestling with investment decisions and the requirement to address the needs of various interest groups: physicians and patients, government law makers and regulators, employees, and stockholders.
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From page 182... ...
In the light of much-needed academic analyses now planned or under way—of such subjects as the pharmaceutical industry's risks versus returns, I am hopeful that the economics of innovation in medicine will some day be better understood. In the meantime, several broad-based initiatives are essential for drug innovation: we need increased government collaboration and support of basic biomedical research; we need better and broader science education at all levels; we need more equitable treatment for U.S.
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From page 183... ...
Recently, Bristol-Myers merged with Squibb; Dow Chemical acquired Marion Laboratories; SmithKline merged with Beecham, the British firm; and Rhone-Poulenc acquired a majority interest in the Rorer Group. Other large foreign companies also are showing great interest in acquiring U.S.
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From page 184... ...
Economic analyses are under way in four broad areas: industry dynamics, risk/return trade-offs, research productivity and innovation, and the regulatory environment. SHORTER PRODUCT LIFE CYCLES Studies of industry dynamics will focus in part on product life cycles through development of economic models that accurately reflect the competitive environment, starting with R&D investments and going through all stages of the product cycle.
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From page 185... ...
Since the accounting methodology considers research an expense rather than an asset, the accounting model makes ROA appear high in comparison with other industries that are less committed to long-term R&D. With the economic model R&D expenditures are capitalized and amortized on the theory that a firm's R&D investment is part of its economic asset base.
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From page 186... ...
Public policy, therefore, should take account of the unique nature and extraordinary risks of pharmaceutical R&D: shorter effective patents, the fact that many projects never succeed, and, indeed, the fact that the overwhelming majority of projects fail to result in a viable product (81. The studies of research productivity and innovation now under way will explore the many interrelated factors that drive innovation and will seek to define an optimal industry structure for productivity.
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From page 187... ...
Health care costs continue to increase faster than the rate of inflation and are causing budget problems for all who provide or pay for health care, including federal and state governments and corporations; 2. This situation sometimes causes payers, such as corporations, health maintenance organizations, and state governments, to make decisions aimed primarily at minimizing costs rather than helping patients.
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From page 188... ...
U.S. SCIENCE EDUCATION Other nations, realizing that a stronger base in science and technology will give them an edge in fiercely competitive international markets, are according research a high priority.
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From page 189... ...
Academic, economic, and financial studies will no doubt be very helpful in framing public policy. But the national debt creates economic burdens that hurt everyone across the board; they drive up interest rates, limit the financial strategies available to business and government, cause fluctuations in the value of the dollar, make our economy unduly dependent on foreign investment, and lower the standard of living for us and future generations.
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From page 190... ...
If Merck or any other drug company could discover an effective drug for Alzheimer's, it would reduce health care costs by billions of dollars and end untold suffering. Public policy should be aimed at encouraging this kind of outcome rather than primarily at cutting costs.
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From page 191... ...
Industry Perspective: Drug Prices. Washington, D.C.: Pharmaceutical Manufacturers Association, 1989.
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