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The Future of Drug Development: The Economics of Pharmacogenomics

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  • John A. Vernon
  • W. Keener Hughen

Abstract

This paper models how the evolving field of pharmacogenomics (PG), which is the science of using genomic markers to predict drug response, may impact drug development times, attrition rates, costs, and the future returns to research and development (R&D). While there still remains an abundance of uncertainty around how PG will impact the future landscape of pharmaceutical and biological R&D, we identify several likely outcomes. We conclude PG has the potential to significantly reduce both expected drug development costs (via higher probabilities of technical success, shorter clinical development times, and smaller clinical trials) and returns. The impact PG has on expected returns is partially mitigated by higher equilibrium prices, expedited product launches, and longer effective patent lives. Our conclusions are, of course, accompanied by numerous caveats.

Suggested Citation

  • John A. Vernon & W. Keener Hughen, 2005. "The Future of Drug Development: The Economics of Pharmacogenomics," NBER Working Papers 11875, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:11875
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    References listed on IDEAS

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    1. John A. Vernon, 2005. "Examining the link between price regulation and pharmaceutical R&D investment," Health Economics, John Wiley & Sons, Ltd., vol. 14(1), pages 1-16, January.
    2. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
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    Cited by:

    1. Scherer, F.M., 2010. "Pharmaceutical Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 539-574, Elsevier.

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    More about this item

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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