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Feb 19, 2002
 |  BioCentury  |  Politics, Policy & Law

Rate of return on novel drugs

New studies by academic economists bolster the case for providing American senior citizens with a prescription drug benefit while suggesting that price controls and other policies that stifle pharmaceutical innovation are not cost-effective.

Two healthcare economists who are pioneering efforts to sort out the costs and benefits of pharmaceuticals presented the findings at a recent workshop in Washington.

Frank Lichtenberg of the Columbia University Graduate School of Business presented research indicating that on average, "each of the 436 new drugs introduced between 1970 and 1991 annually added 11,200 aggregate years of life to the U.S. population."

Drug development provides a very high "social rate of return," according to Lichtenberg, who also is a research associate at the National Bureau of Economic Research. He estimated that the average recurring annual benefit to society from increased longevity from each new drug approval at $200 million. This is based on an estimate that a year of additional life is worth $25,000, a "conservative" figure, Lichtenberg...

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