The distribution of sales revenues from pharmaceutical innovation.

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Grabowski, HG
Vernon, J

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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.







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 publications. Professor Grabowski has testified several times before Congress on the issues of FDA regulation, health care reform, drug innovation and generic competition and vaccine policies. He has received numerous awards and professional recognition including a special issue of essays published in his honor in 2011 in the International Journal of the Economics of Business. He also has served as an advisor to various government and business organizations, including the National Academy of Sciences, the Institute of Medicine, the Office of Technology Assessment, the Federal Trade Commission, and the General Accounting Office. The US Congress has recognized the significant role that a paper he published with Duke colleagues David Ridley and Jeff Moe had in the passage of legislation that incentivized development of new therapies for neglected diseases through the creation of priority review vouchers.

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