Public Policy and Innovation in the U.S. Pharmaceutical Industry

Posted: 4 Nov 2009

See all articles by Frank R. Lichtenberg

Frank R. Lichtenberg

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Date Written: 2004

Abstract

Public policy can impact innovation, eitherencouraging or inhibiting the creation of innovative technologies.Howfive public policies have impacted continued innovation within the U.S.pharmaceutical industry is examined.At issue are the 1962 Kefauver-HarrisAmendment; the 1992 Prescription Drug User Fee Act; Medicare; Medicaid; and the1984 Hatch-Waxman Act. The policies set forth in each act are described, as are their effects oninnovation in the industry.Using a theoretical approach, the impactthat the speed and the ease of pharmaceutical imitation has upon pharmaceuticalinnovation is analyzed, with the belief that it impedes the rapidity ofinnovation within the industry.This theory is assessed, noting that theresearch on the impact of rapid imitation is mixed. The predicted impact of President Clinton's proposed 1993 health care reformpolicies is evaluated by studying the impact of the policies upon the marketvalue of pharmaceutical corporations and upon R&D investment. The findingsindicate that the proposed health care reform policies of the ClintonAdministration threatened the pharmaceutical industry, resulting in a reductionin the growth rate of R&D expenditure. (AKP)

Keywords: Imitation, Hatch-Waxman Act of 1984, U.S. Food & Drug Administration (FDA), Kefauver-Harris Amendment of 1962, Prescription Drug User Fee Act of 1992, Medicare, Medicaid, Industrial research, Federal regulations, Product development, Public policies, R&D expenditures, Healthcare industry, Policy analysis, Innovation process, Market value, Patents, Pharmaceutical industry

Suggested Citation

Lichtenberg, Frank R., Public Policy and Innovation in the U.S. Pharmaceutical Industry (2004). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1497269

Frank R. Lichtenberg (Contact Author)

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