Fda New Drug Approval Times, Prescription Drug User Fees, and R&D Spending

22 Pages Posted: 20 Sep 2006

See all articles by Joseph H. Golec

Joseph H. Golec

University of Connecticut - Department of Finance

John A. Vernon

University of North Carolina (UNC) at Chapel Hill; National Bureau of Economic Research (NBER)

Randall Lutter

American Enterprise Institute (AEI); AEI-Brookings Joint Center for Regulatory Studies

Clark Nardinelli

U.S. Department of Health & Human Services

Date Written: September 2006

Abstract

FDA-approval times have declined significantly since the enactment of the Prescription Drug User Fee Act (PDUFA) in 1992. As a result, present value expected returns to pharmaceutical R&D have likely increased. In the current paper we employ a unique survey dataset, which includes for the first time data on firm-level pharmaceutical R&D. We estimate the effects that FDA-approval times have on R&D investments. Controlling for other factors such as pharmaceutical profitability and cash flows, we find that a 10 percent decrease (increase) in FDA-approval times results in a 1.7 percent increase (decrease) in R&D spending. Combining this estimate with previous research and publicly available data on industry-level pharmaceutical spending between 1992 and 2001, we conclude PDUFA, and its subsequent renewals, stimulated an additional $13.5 billion in pharmaceutical R&D (2005 $U.S.), and has presumably continued to do so since 2001. Recent economic research has shown the social rate of return on pharmaceutical R&D is remarkably high; thus, the social benefits of PDUFA (over and above the benefits of more rapid consumer access) are likely to be substantial.

Keywords: FDA, R&D, pharmaceutical

JEL Classification: H00

Suggested Citation

Golec, Joseph and Vernon, John A. and Lutter, Randall and Nardinelli, Clark, Fda New Drug Approval Times, Prescription Drug User Fees, and R&D Spending (September 2006). AEI-Brookings Joint Center Working Paper No. 06-21. Available at SSRN: https://ssrn.com/abstract=931153 or http://dx.doi.org/10.2139/ssrn.931153

Joseph Golec

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

John A. Vernon (Contact Author)

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Randall Lutter

American Enterprise Institute (AEI) ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States
202-862-7177 (Phone)

AEI-Brookings Joint Center for Regulatory Studies

1150 17th Street, N.W.
Washington, DC 20036
United States

Clark Nardinelli

U.S. Department of Health & Human Services ( email )

Washington, DC 20201
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
211
Abstract Views
1,961
rank
154,616
PlumX Metrics