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Importation and Innovation

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  • Frank R. Lichtenberg
Abstract
Importation of drugs into the U.S. would result in a decline in U.S. drug prices. The purpose of this paper is to assess the consequences of importation for new drug development. A simple theoretical model of drug development suggests that the elasticity of innovation with respect to the expected price of drugs should be at least as great as the elasticity of innovation with respect to expected market size (disease incidence). I examine the cross-sectional relationship between pharmaceutical innovation and market size among a set of diseases (different types of cancer) exhibiting substantial exogenous variation in expected market size. I analyze two different measures of pharmaceutical innovation: the number of distinct chemotherapy regimens for treating a cancer site, and the number of articles published in scientific journals pertaining to drug therapy for that cancer site. Both analyses indicate that the amount of pharmaceutical innovation increases with disease incidence. The elasticity of the number of chemotherapy regimens with respect to the number of cases is 0.53. The elasticity of MEDLINE drug cites with respect to cancer incidence throughout the world is 0.60. In the long run, a 10% decline in drug prices would therefore be likely to cause at least a 5-6% decline in pharmaceutical innovation.

Suggested Citation

  • Frank R. Lichtenberg, 2006. "Importation and Innovation," NBER Working Papers 12539, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:12539
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    References listed on IDEAS

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    Cited by:

    1. Javad Moradpour & Aidan Hollis, 2020. "Patient income and health innovation," Health Economics, John Wiley & Sons, Ltd., vol. 29(12), pages 1795-1803, December.
    2. Lichtenberg Frank R., 2010. "Are Increasing 5-Year Survival Rates Evidence of Success Against Cancer? A Reexamination Using Data from the U.S. and Australia," Forum for Health Economics & Policy, De Gruyter, vol. 13(2), pages 1-18, August.
    3. Agarwal, Ruchir & Gaule, Patrick, 2022. "What drives innovation? Lessons from COVID-19 R&D," Journal of Health Economics, Elsevier, vol. 82(C).
    4. Laura Grigolon & Laura Lasio, 2023. "Biased Beliefs and Stigma as Barriers to Treatment and Innovation Adoption," CRC TR 224 Discussion Paper Series crctr224_2023_277v2, University of Bonn and University of Mannheim, Germany.
    5. Jay Bhattacharya & Mikko Packalen, 2008. "Is Medicine an Ivory Tower? Induced Innovation, Technological Opportunity, and For-Profit vs. Non-Profit Innovation," NBER Working Papers 13862, National Bureau of Economic Research, Inc.
    6. Civan Abdulkadir & Maloney Michael T., 2009. "The Effect of Price on Pharmaceutical R&D," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 9(1), pages 1-24, April.
    7. Bhattacharya, Jay & Packalen, Mikko, 2011. "Opportunities and benefits as determinants of the direction of scientific research," Journal of Health Economics, Elsevier, vol. 30(4), pages 603-615, July.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F1 - International Economics - - Trade
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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