Innovation Incentives in the Pharmaceutical Sector: Re-thinking Competition and Public Policy?

Abstract

The incentives of pharmaceutical companies to innovate and how competition affects these incentives has been topical in recent years: for the general public, as evidenced by a patent race at an unprecedented pace during the ongoing COVID-19 pandemic; and more specifically for competition authorities, as demonstrated for example by the role innovation played in the assessment of the Bayer/Monsanto (2018), Dow/DuPont (2017), and the Novartis/GSK (2015) mergers. This paper contributes to the innovation debate, notably in the pharmaceutical industry, by giving an overview on firm and market-level incentives to carry out research and development (R&D). Understanding these innovation incentives is relevant for a proper competition assessment where the effect of a particular conduct or structural change on these incentives is considered, but also more generally in the context of public policy or regulatory questions. We review the fundamental elements driving innovation incentives and tentatively relate these to the development of new drugs for neurodegenerative diseases (NDD), in particular Parkinson’s disease (PD) and Alzheimer’s disease (AD).

Keywords: Health Economics, Pharmaceutical Products, Innovation, R&D, Information Asymmetry, Coase Conjecture, Replacement Effect, Patent Race, Competition, Neurodegenerative Diseases, Parkinson’s Disease, Alzheimer’s Disease

JEL Classification: I18, L13, O31