The economics of pharmaceutical development: costs, risks, and incentives

Abstract

This dissertation explores the economics of pharmaceutical development by examining the costs of clinical trials, the impact of the Orphan Drug Act on drug availability, and the optimization of pharmaceutical development portfolios. The study estimates clinical trial costs by analyzing publicly reported R&D expenses and clinical trial data, finding that the costs of Phase I and II trial subjects are substantial, suggesting the potential for cost savings through adaptive trial designs. The dissertation investigates the Orphan Drug Act’s effects on drug availability using a regression discontinuity approach, finding no significant discontinuity in drug prescriptions around the prevalence threshold for orphan drug designation, potentially due to perverse price effects of orphan incentives. Finally, the study analyzes the U.S. Public Health Emergency Medical Countermeasure Enterprise (PHEMCE), estimating costs and designing an optimal portfolio for achieving fixed success probabilities, suggesting the need for prioritization or cost reduction strategies to achieve reasonable success probabilities.