Evaluation of incentives for R&D in the pharmaceutical industry with applications for neglected diseases

Abstract

This thesis is concerned with the development of incentives for pharmaceutical R&D, specifically for neglected diseases. The following approaches are adopted. The short-term effects of the recent cost-containment reforms on seven financial indicators related to firms‘ R&D in Denmark, Germany, France, Japan, and the US are estimated. The dataset represents a panel data of financial statements of 1306 pharmaceutical firms for the period 1997-2007. National pharmaceutical expenditures, population, availability of credit, patent applications, and regulatory quality have been controlled for. The average treatment effects on the treated are econometrically estimated with before-after comparisons, two difference-in-differences (DiD) and three matching DiD methods. Impacts of liquidity constraints on R&D and investment are estimated with dynamic panel methods. Using frontier modelling, technical production inefficiencies are estimated and tested for independence from the stringency of national regulation. The major findings of this dissertation are: R&D indicators tend to be persistent despite the regulatory changes; tighter cost-containment regulations appear not to be associated with technical efficiency or R&D intensity of firms; cash flow has a positive effect on pharmaceutical R&D of small and young firms, but not on physical investment. Improved access to clean water appears to be the most important factor in the reduction of the neglected diseases‘ burden; evaluation of R&D schemes for neglected diseases based on 17 criteria indicates insufficient performance of the existing proposals and a number of recommendations to design better incentives are substantiated. Based on this analysis, I have designed a new hybrid public-private partnership model for financing R&D in the form of a prize screening mechanism, which relies on the innovative effort of small firms by reducing entry barriers and moral hazard problems.