Working Paper: NBER ID: w20212
Authors: David Dranove; Craig Garthwaite; Manuel Hermosilla
Abstract: Prior research has shown that exogenous shocks to the demand for medical products spur additional product development. These studies do not distinguish between breakthrough products and those that largely duplicate the performance of existing products. In this paper, we use a novel data set to explore the impact of the introduction of Medicare Part D on the development of new biotechnology products. We find that the law spurred development of products targeting illnesses that affect the elderly, but most of this effect is concentrated among products aimed at diseases that already have multiple existing treatments. Moreover, we find no increase in products targeting orphan disease or those receiving either fast track or priority review status from the FDA. This suggests that marginal changes in demand may have little effect on the development of products with large welfare benefits.
Keywords: pharmaceuticals; Medicare Part D; biotechnology; innovation; clinical trials
JEL Codes: H0; I1; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Medicare Part D (H51) | increase in clinical trial activity for biotechnology products (L65) |
| Medicare Part D (H51) | increase in clinical trial activity for biotechnology products targeting diseases with higher Medicare market share (MMS) (I11) |
| Medicare Part D (H51) | increase in clinical trial activity for AA products (L65) |
| Medicare Part D (H51) | no significant change in clinical trial activity for FTT products (O32) |
| increase in clinical trials (C90) | firms moving existing technologies into trials rather than generating new scientific breakthroughs (O36) |