THE VERTICAL CHAIN OF RESEARCH AND DEVELOPMENT IN THE PHARMACEUTICAL INDUSTRY

Authors

  • MICHAEL R. WARD,

  • DAVID DRANOVE

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    • *Federal Trade Commission and Northwestern University. The views expressed here do not necessarily reflect those of the Federal Trade Commission or any particular commissioner. The authors acknowledge the financial support of Burroughs-Wellcome and Merck & Co. Valuable suggestions were received from Brian Bowen, David Meltzer, Lester Telser, Robert Topel, and an anonymous referee.


Abstract

This paper examines the relationship between basic and applied pharmaceutical research. We focus on three stages of research and development (R & D): government-funded basic research; publication in medical journals; and industry-finded applied R&D. We estimate that a one percent increase in basic research in a particular therapeutic category causes a 0.76 percent increase in industry R&D in that category, and a 1.71 percent increase in other categories, mer seven years. We also find that research incentives differ across government, academic and industry researchers. For example, government funding favors diseases that are less prevalent and more debilitating than industry funding.

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