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October 09, 2004
Reducing/Increasing Research.
"...would you be willing to trade a 10% reduction in price for a 20% reduction in the growth rate of new drugs?"
Research is, ultimately, driven by money. It's expensive. We've seen what Amarin has gone through to survive and bring a promising Huntington's Disease drug to the market.
This article on the "Marginal Revolution" blog has an excellent discussion about the effects price controls have on reducing medical research. This topic is of vital importance to our community because, due to the relative rarity of Huntington's Disease, our research is more vulnerable to drops in available research money.
Acemoglu and Linn's paper is formally about a different issue; the effect of market size on innovation. What they find is that a 1 percent increase in the potential market size for a drug leads to an approximately 4 percent increase in the growth rate of new drugs in that category. In other words, if you are sick it is better to be sick with a common disease because the larger the potential market the more pharmaceutical firms will be willing to invest in research and development. Misery loves company.
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We can expect, therefore, that a 1% reduction in price will reduce the growth rate of new drug entries by 4% and a 10% reduction in price will reduce new drug entries by 40%. That is a huge effect. I suspect that the authors have overestimated the effect but even if it were one-half the size would you be willing to trade a 10% reduction in price for a 20% reduction in the growth rate of new drugs? No one who understands what these numbers mean would think that is a good deal.
As i mentioned before, reductions in research would hit HD research harder than it would for other diseases with larger pools of potential buyers.
Posted by Dave at October 9, 2004 12:52 PM
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