Valuing Novelty in Consumer Demand for Pharmaceuticals

Charu Gupta, Healthcare Management, The Wharton School

Abstract: The importance of innovation to economic and societal development is long-standing. But innovations are not all equal, ranging from minor improvements in existing products to market-disrupting new technologies. In the pharmaceutical industry, industry leaders argue high prescription drug prices and extended periods of patent protection are necessary to defray the costs of drug development. Critics, however, note that many new pharmaceutical products are “me-too” or “follow-on” drugs with a similar chemical structure and treating the same condition as one already on the market. They point to a lack of new molecules providing clinical benefit among newly approved drug products and a need for policy reforms to promote truly innovative drug development. Prior scholarly work confirms that regulatory institutions and market forces distort incentives for innovative pharmaceutical development. Despite the controversy, a fundamental question remains unanswered which I seek to address in this research: What is the actual value of novelty in pharmaceuticals to consumers?