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Pharmaceutical Innovation

Frederic M. Scherer

Harvard University - Harvard Kennedy School (HKS)

July 2007

KSG Working Paper No. RWP07-004
AEI-Brookings Joint Center Working Paper No. 07-19

This article, written for the forthcoming Handbook of the Economics of Technical Change, surveys the costs, risks, and challenges encountered in the discovery and development of superior new pharmaceuticals. The changing methods by which drugs are discovered, the links between companies and academic science, the changing character of public regulation, and the sharp rise in the cost per new approved drug are analyzed. Determining which new drugs are both efficacious and safe poses classic statistical decision theory problems. Why patents are so important to drug developers is explored. A rent-seeking theory of new drug development is proposed to rationalize the high gross margins but only slightly supra-normal returns on investment realized by pharmaceutical companies, and the economic welfare implications are investigated.

Number of Pages in PDF File: 59

Keywords: Welfare, Health Care, Social Policy

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Date posted: February 6, 2007  

Suggested Citation

Scherer, Frederic M., Pharmaceutical Innovation (July 2007). KSG Working Paper No. RWP07-004; AEI-Brookings Joint Center Working Paper No. 07-19. Available at SSRN: https://ssrn.com/abstract=902395 or http://dx.doi.org/10.2139/ssrn.902395

Contact Information

Frederic M. Scherer (Contact Author)
Harvard University - Harvard Kennedy School (HKS) ( email )
79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1154 (Phone)
617-496-0063 (Fax)
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