Empirical essays on global pharmaceutical innovation

Abstract

The economic impact of the pharmaceutical industry is incontestable. The total drug bill across OECD countries has continuously risen over the last decades (OECD, 2011), and, consequently, healthcare payers are increasingly implementing stricter policies that promote access to cheaper treatments. These policies, however, may hinder incentives to innovate, especially in diseases of substantial public health importance for which there is either under-investment or where innovation is difficult. Therefore, it is fundamental that health systems design policies that strike the right balance between promoting the development of affordable drugs, and allowing sufficient rents to innovators in order to incentivise R&D investment. The debate on this balance has never been more pertinent, with a slowdown in the number of drugs in the pipeline for potential market launch. Around 90% of drug candidates do not successfully complete the mid-stage of drug discovery (Paul et al., 2010; Mestre-Ferrandiz et al., 2012), contributing to the escalation of R&D costs with potentially significant social welfare consequences. The aim of this thesis is to contribute to this debate by exploring the nature of the R&D process, and assessing the factors associated with decreased productivity across disease areas and its equity implications. We survey the literature on the determinants of pharmaceutical innovation and critically appraise the evidence on factors that influence innovation of new therapies. We identify gaps and contribute conceptually to the understanding of the determinants of innovation. We depart from the existing literature in three significant ways. The major contribution is the analysis of failure for all stages of the R&D process, using a unique global panel dataset built by merging data on the lifecycle of industry innovation processes with global health data (Chapter 4). Secondly, we have used methodological approaches that model the dynamic nature of R&D decisions to forecast drug availability in the coming decades (Chapter 5). Thirdly, we are the first to assess the global impact of innovation on equity of access to new therapies (Chapter 6). Acknowledging the implications of data limitations (Chapter 3) we produce insight that contributes to understanding the determinants of failure in innovation and its implications for future availability of new therapies. Results suggest those determinants differ across the R&D stages. Furthermore, market competition may intensify the level of failure if too many young drugs are competing in the market, whilst collaboration between firms has an unclear effect on innovation. Moreover, the distribution of the R&D activity and disease burden have not changed significantly over the last two decades with a concentration of innovation in more commercially attractive disease areas associated with high mortality in the richest countries. Finally, that those equity concerns are likely to persist unless new policy interventions are designed to address inequalities in R&D and access to new therapies.