The distribution of sales revenues from pharmaceutical innovation.
Abstract
OBJECTIVE: This report updates our earlier work on the returns to pharmaceutical research
and development (R&D) in the US (1980 to 1984), which showed that the returns distributions
are highly skewed. It evaluates a more recent cohort of new drug introductions in
the US (1988 to 1992) and examines how the returns distribution is emerging for drugs
with life cycles concentrated in the 1990s versus the 1980s. DESIGN AND SETTING: Methods
were described in detail in our earlier reports. The current sample included 110 new
drug entities (including 28 orphan drugs), and sales data were obtained for the period
1988 to 1998, which represented between 7 and 11 years of sales for the drugs included.
20 years was chosen as the expected market life for this cohort, and a 2-step procedure
was used to project future sales for the drugs--during the period until patent expiry
and then beyond patent expiry until the 20-year time-horizon was completed. Thus,
the values in the first half of the life cycle are essentially based on realised sales,
while those in the second half are projected using information on patent expiry and
other inputs. MAIN OUTCOME MEASURES AND RESULTS: Peak annual sales for the top decile
of drugs introduced between 1988 and 1992 in the US amounted to almost $US1.1 billion
compared with peak sales of less than $US175 million (1992 values) for the mean compound.
In particular, the top decile accounted for 56% of overall sales revenue. Although
the sales distributions were skewed in both our earlier and current analysis, the
top decile in the later time-period exhibited more rapid rates of growth after launch,
a peak that was more than 50% greater in real terms than for the 1980 to 1984 cohort,
and a faster rate of expected decline in sales after patent expiry. One factor contributing
to the distribution of sales revenues becoming more skewed over time is the orphan
drug phenomenon (i.e. most of the orphan drugs are concentrated at the bottom of the
distribution). CONCLUSION: The distribution of sales revenues for new drug compounds
is highly skewed in nature. In this regard, the top decile of new drugs accounts for
more than half of the total sales generated by the 1988 to 1992 cohort analysed. Furthermore,
the distribution of sales revenues for this cohort is more skewed than that of the
1980 to 1984 cohort we analysed in previous research.
Type
Journal articleSubject
Costs and Cost AnalysisDrug Industry
Drugs, Investigational
Orphan Drug Production
Research Support as Topic
United States
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Show full item recordScholars@Duke
Henry G. Grabowski
Professor Emeritus of Economics
Professor Grabowski specializes in the investigation of economics in the pharmaceutical
industry, government regulation of business, and the economics of innovation. His
specific interests within these fields include intellectual property and generic competition
issues, the effects of government policy actions, and the costs and returns to pharmaceutical
R&D. He has over one hundred peer reviewed articles analyzing the economics of pharmaceuticals
and also several books and monograph publica

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