Better Access, Fewer Drugs? An Examination of the Impact of Rising Generic Entry on the Incentives to Conduct Pharmaceutical R&D

National Bureau Of Economic Research Inc, Cambridge MA

Investigators

Abstract

Pharmaceutical innovation has had an important impact on human welfare across the globe. It is important that public policymakers around the world get the policy balance between the competing goals of drug access and incentives for R&D right. Since the U.S. pharmaceutical market has and will continue to play a disproportionately important role in global industry profits, it is especially important that U.S. policy strike the right balance. The legislation that determines this balance in the United States is the Hatch-Waxman Act of 1984. It was originally hailed as a bipartisan compromise that both raised access and increased incentives for R&D. In more recent years, it appears that the Act has opened the door to a greater degree of generic competition for drug innovators than its architects may have intended. This research examines the impact of the acceleration of generic entry on consumer welfare, the incentives for R&D investment, and the impact on innovation. Intellectual merit: The research takes advantage of recent methodological advances in industrial organization and econometrics that assess the welfare impact of new product introductions. The methodological tools are applied to a data set that is richer and more complete than that of prior investigators in this field. In particular, the research makes use of the universe of product level sales data for pharmaceuticals marketed in the U.S. over a substantial period of recent time. These data are linked to comprehensive data on expedited generic entry authorized under the Hatch-Waxman Act. The researchers also trace product-level sales data at the firm level. This is linked with a comprehensive data base that covers effectively all new compounds entering the clinical trials process in the United States over the sample period. Broader impacts: The research provides important insight into the gains that come with increased access against the losses that may accrue due to foregone or delayed innovation and provide increased understanding of whether the policy balance in the U.S. market is optimal one. In addition, the research provides both a conceptual and empirical foundation for future research.