Biomedical Engineering Reference
In-Depth Information
2. What is the relationship between government interventions that contain expen-
diture on medicines and industry willingness to continue investing in R&D?
In US based studies, Lichtenberg (2005) found that new medicines launched
between 1980 and 2000 contributed substantially to increasing patients' lifespans,
and reducing expensive hospital stays. In a series of papers based largely upon expe-
rience in the US, Scherer (2004) explored various economic models for setting the
balance between innovative progress and affordability of medicines. He concluded
that although there exists a need to carefully track the effects of patent protection
along with the forces of market competition, direct government regulations on pric-
ing would be counterproductive over the long term. Such US models are instructive
because the US represents approximately half of the world's consumption of mod-
ern medicines, and it is the home of probably an even higher proportion of total
“leading-edge” pharmaceutical R&D expenditure.
Such an analysis would be difficult in Europe, where national markets are highly
fragmented, and the distribution of R&D investments among them is highly skewed.
In the UK, the PPRS, which regulates industry profits from the NHS, has long been
seen as the classic model, potentially linking returns to innovators with levels of
national investment.
In a study of the Dutch medicines market, PriceWaterhouseCoopers (2004)
developed a model which showed that, in Holland, a 1% decline in industry profits
would lead to a 0.24% decline in R&D spending, in the short-term, and to a 0.4%
decline in the long term. A US study concluded that government spending controls
in Germany, Sweden, the UK, and France resulted in lower R&D spending by com-
panies. It found that a decrease in drug prices by 1% led to a 0.7% drop in R&D
spending (US General Accounting Office Report, 1994).
Abbott and Vernon (2005) used a micro-simulation model to analyse the response
of R&D to changes in US prices. They found that large changes in price rapidly
reduce investment incentives. Their study concludes:
Most observers believe that the impact of our growing knowledge
of the effects of genes and proteins will be the potential to develop
highly targeted drugs for specific genotypes. The impact of this on
the financial incentives for R&D could be dramatic; as the costs
of development appear to be increasing and the potential market
for each product seems to be shrinking. Thus, one might expect
the prices of these newer, individualised medicines, to be extraor-
dinarily high if they are to provide positive NPV projects at the
initial “Go/No-go” decision point. Policies that put pressure on
pharmaceutical prices could be expected to stifle such innovation.
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