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Uncertainty and choice: the challenges of pharmaceutical efficacy, safety, and cost

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  • F.M. Scherer

    (Harvard University Emeritus, Cambridge, MA, USA)

Abstract

This paper addresses the role of uncertainty in challenges confronting the US pharmaceutical industry and its regulators. It begins with a macroeconomic overview, showing how rising health care costs, including rising ethical drug costs, squeeze the wage and salary share of national income. It addresses the claim that pharmaceutical companies' new drug pipelines are drying up. Taking a stochastic approach, it shows that both the trend of new medical entity approvals and the trend of pharmaceutical company gross margins can be explained as random walks-the latter as a result of sampling from a highly skew distribution. It then focuses on problems of ascertaining efficacy and especially low-probability adverse effects from clinical trial samples of acceptable size. Noting the need for post-NDA surveillance of adverse effects and observing the incentive failures that occur at that stage, it proposes two new approaches to identifying adverse reactions. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • F.M. Scherer, 2007. "Uncertainty and choice: the challenges of pharmaceutical efficacy, safety, and cost," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 267-283.
    • Handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:267-283
    DOI: 10.1002/mde.1340
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    References listed on IDEAS

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    1. Jean O. Lanjouw, 2005. "Patents, Price Controls and Access to New Drugs: How Policy Affects Global Market Entry," Working Papers 61, Center for Global Development.
    2. Henry Grabowski & John Vernon, 1990. "A New Look at the Returns and Risks to Pharmaceutical R&D," Management Science, INFORMS, vol. 36(7), pages 804-821, July.
    3. Peltzman, Sam, 1987. "The Health Effects of Mandatory Prescriptions," Journal of Law and Economics, University of Chicago Press, vol. 30(2), pages 207-238, October.
    4. Joseph P. Newhouse, 1992. "Medical Care Costs: How Much Welfare Loss?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 3-21, Summer.
    5. Scherer, F. M. & Harhoff, Dietmar, 2000. "Technology policy for a world of skew-distributed outcomes," Research Policy, Elsevier, vol. 29(4-5), pages 559-566, April.
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    Cited by:

    1. Seyb, Stella K., 2022. "Red flags and rave reviews: Explaining too-good-to-be-true crowdfunding campaigns," Business Horizons, Elsevier, vol. 65(1), pages 69-78.

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