Danzon, Patricia M. --- "Regulation of the Biopharmaceutical Industry" [2012] ELECD 446; in Van den Bergh, J. Roger; Pacces, M. Alessio (eds), "Regulation and Economics" (Edward Elgar Publishing, 2012)

Book Title: Regulation and Economics

Editor(s): Van den Bergh, J. Roger; Pacces, M. Alessio

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781847203434

Section: Chapter 14

Section Title: Regulation of the Biopharmaceutical Industry

Author(s): Danzon, Patricia M.

Number of pages: 38

Extract:

14 Regulation of the biopharmaceutical industry
Patricia M. Danzon



1. INTRODUCTION

The pharmaceutical industry is of interest to the field of law and economics
for three related reasons that modify the application of the standard analysis of
structure, conduct and performance used in industrial organization. First, the
pharmaceutical industry makes unusually high investment in Research and
Development (R&D), which implies a high rate of technical change, high
fixed costs relative to marginal cost, critical importance of patent protection,
and novel price and product competitive strategies. This raises interesting
positive and normative issues related to patent rules and generic entry, pricing
and public policy.
Second, the industry is heavily regulated in all major functions. Early regu-
lation focused on safety as a condition of market access for new drugs.
Starting in the 1960s most countries have also required evidence of efficacy
and manufacturing quality, and restrict promotion and advertising to both
physicians and consumers. In the 1980s and 1990s, most countries added regu-
lation to control drug prices, insurance reimbursement, and/or total expendi-
tures. These policies arise out of concern that extensive insurance coverage
makes consumer demand more price-inelastic, which tends to lead to
increased utilization and higher prices, unless payers add constraints. Public
insurers typically target controls at the supply side of the market, while private
insurers rely more on consumer cost-sharing. Insurance and these control poli-
cies affect the nature of competition, returns to and incentives for R&D and
ultimately social welfare. A growing ...