The results of the real options investment model indicate that under such a policy the abandonment rate for economic reasons for all cohorts entering in 2005 or after is equal to 37.5%. This considerably exceeds the actual abandonment rate (for economic reasons) in the baseline simulation (20.7%), suggesting that the new policy could have severe consequences for drug innovation rates.
According to the baseline assumptions in the model (an approval rating of 23.5%), a cohort reaching clinical trials, consisting on average of 130 drugs, could be expected to yield 31 new drugs.
Importation schemes would shrink the pipeline for new prescription drugs by reducing the ability of companies to recover their investment in R&D.
In the 12 years following the implementation of a price control policy:
R&D spending by pharmaceutical and biotechnology firms would fall by $14.8 billion, in net present value terms.
Price control policies would lead to the abandonment of an additional 262 drugs for economic reasons.
Under a price control policy, only nine new drugs would likely be approved in a year, a decrease of more than 70% from the current average of 31.
Reduced R&D spending attributable to drug importation would also have a serious negative effect on the U.S. economy and, in particular, on those states such as Massachusetts, whose economies benefit from the existence of strong pharmaceutical and biotechnology sectors.
In Massachusetts, where nearly 10% of the nations pharmaceutical and biotech research and development dollars are spent:
Price controls would destroy 3,957 jobs over the first six years.
By 2010, the loss in economic activity (as measured by value-added) in Massachusetts would total $247 million (in 2000 dollars).