The link between gross profitability and pharmaceutical R&D spending

Health Affairs

Volumn 20, Issue 5, 2001, Pages 216-220

  Scherer, F M ^a  

^a HARVARD UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; COST BENEFIT ANALYSIS; DRUG INDUSTRY; DRUG SCREENING; ECONOMIC ASPECT; ECONOMICS; HUMAN; INCOME; RESEARCH; STATISTICAL MODEL; UNITED STATES;

COST-BENEFIT ANALYSIS; DRUG EVALUATION; DRUG INDUSTRY; ECONOMIC COMPETITION; HUMANS; INCOME; MODELS, ECONOMIC; RESEARCH; UNITED STATES;

EID: 0011783532     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.20.5.216     Document Type: Article

References (13)

1. H.G. Grabowski and J.M. Vernon, "A New Look at the Returns and Risks to Pharmaceutical R&D," Management Science (July 1990): 804-821.
2. See C.P. Himmelberg and B.C. Petersen, "R&D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries," Review of Economics and Statistics (February 1994): 38-51; W.W. McCutchen Jr., "Estimating the Impact of the R&D Tax Credit on Strategic Groups in the Pharmaceutical Industry," Research Policy (August 1993): 337-351; and H.G. Grabowski, "The Determinants of Industrial Research and Development," Journal of Political Economy (March/April 1968): 292-306.
3. See C.P. Himmelberg and B.C. Petersen, "R&D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries," Review of Economics and Statistics (February 1994): 38-51; W.W. McCutchen Jr., "Estimating the Impact of the R&D Tax Credit on Strategic Groups in the Pharmaceutical Industry," Research Policy (August 1993): 337-351; and H.G. Grabowski, "The Determinants of Industrial Research and Development," Journal of Political Economy (March/April 1968): 292-306.
4. See C.P. Himmelberg and B.C. Petersen, "R&D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries," Review of Economics and Statistics (February 1994): 38-51; W.W. McCutchen Jr., "Estimating the Impact of the R&D Tax Credit on Strategic Groups in the Pharmaceutical Industry," Research Policy (August 1993): 337-351; and H.G. Grabowski, "The Determinants of Industrial Research and Development," Journal of Political Economy (March/April 1968): 292-306.
5. See J. Schmookler, Innovation and Economic Growth (Cambridge: Harvard University Press, 1966); and F.M. Scherer, "Demand-Pull and Technological Innovation: Schmookler Revisited," Journal of Industrial Economics (March 1982): 225-238.
6. See J. Schmookler, Innovation and Economic Growth (Cambridge: Harvard University Press, 1966); and F.M. Scherer, "Demand-Pull and Technological Innovation: Schmookler Revisited," Journal of Industrial Economics (March 1982): 225-238.
7. Despite that difficulty, the use of standard year-to-year time series analysis yields results consistent with those reported here. See F.M. Scherer, Industry Structure, Strategy, and Public Policy (New York: HarperCollins, 1996), 388.
8. Extending the analysis into 1997 and especially beyond is problematic, since a new industry classification, the North American Standard Industrial Classification, was adopted by the U.S. Census Bureau in that year. Using splice data provided by the Census Bureau for 1997, one finds that constant-dollar gross margins for the industry, as defined in 1996, probably rose by approximately 11.9 percent relative to 1996. Constant-dollar R&D outlays rose by 10.6 percent. The census universe excludes production in Puerto Rico, which is an important source of U.S. pharmaceutical products.
9. For example, for R&D, the calculation is [(R&D-Trend)/Trend] × 100.
10. See U.S. Congress, Office of Technology Assessment, Pharmaceutical R&D: Costs, Risks, and Rewards, Pub. no. OTA-H-522 (Washington: U.S. Government Printing Office, February 1993), 20-22.
11. Ibid., chap. 1. For the pioneering theoretical analysis of such behavior, see Y. Barzel, "Optimal Timing of Innovations," Review of Economics and Statistics (August 1968): 348-355. For an application to pharmaceuticals, which at the time of writing was considered one of two plausible theoretical alternatives, see Scherer, Industry Structure, Strategy, and Public Policy, 365-366.
12. Ibid., chap. 1. For the pioneering theoretical analysis of such behavior, see Y. Barzel, "Optimal Timing of Innovations," Review of Economics and Statistics (August 1968): 348-355. For an application to pharmaceuticals, which at the time of writing was considered one of two plausible theoretical alternatives, see Scherer, Industry Structure, Strategy, and Public Policy, 365-366.
13. Ibid., chap. 1. For the pioneering theoretical analysis of such behavior, see Y. Barzel, "Optimal Timing of Innovations," Review of Economics and Statistics (August 1968): 348-355. For an application to pharmaceuticals, which at the time of writing was considered one of two plausible theoretical alternatives, see Scherer, Industry Structure, Strategy, and Public Policy, 365-366.