R&D in the Pharmaceutical Industry: A World of Small Innovations

30 Pages Posted: 20 Jul 2007

See all articles by Beatriz Dominguez

Beatriz Dominguez

affiliation not provided to SSRN

Juan-José Ganuza

Universitat Pompeu Fabra (UPF) - Faculty of Economic and Business Sciences

Gerard Llobet

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR)

Date Written: December 2005

Abstract

It is commonly argued that in recent years pharmaceutical companies have directed their R&D towards small improvements of existing compounds instead of more risky drastic innovations. In this paper we show that the proliferation of these small innovations is likely to be linked to the lack of market sensitivity of a part of the demand to changes in prices. Compared to their social contribution, small innovations are relatively more profitable than large ones because they are targeted to the smaller but more inelastic part of the demand. We also study the effect of regulatory instruments such as price ceilings, copayments and reference prices and extend the analysis to competition in research.

Keywords: Health-care, pharmaceuticals, innovation

JEL Classification: I11, I18, L51, O31

Suggested Citation

Dominguez, Beatriz and Ganuza, Juan and Llobet, Gerard, R&D in the Pharmaceutical Industry: A World of Small Innovations (December 2005). Available at SSRN: https://ssrn.com/abstract=1001884 or http://dx.doi.org/10.2139/ssrn.1001884

Beatriz Dominguez

affiliation not provided to SSRN ( email )

No Address Available

Juan Ganuza (Contact Author)

Universitat Pompeu Fabra (UPF) - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
(34-93) 542 27 19 (Phone)
(34-98) 542 17 46 (Fax)

Gerard Llobet

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
SPAIN
34 91 429 0551 (Phone)
34 91 429 1056 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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