Ekaterina Khmelnitskaya (Virginia): “Competition and Attrition in Drug Development”
Abstract: With fewer than 10% of new drugs reaching the market, the drug development process is notorious for its high attrition rate. It is well-known that drugs get discontinued after clinical failures. However, surveys suggest that firms also withdraw drugs for commercial reasons. Disentangling the sources of attrition is necessary for predicting the impact of government policy on pharmaceutical innovation. This paper separately estimates the two components of attrition using a continuous-time dynamic model of the drug development process. I find that commercial withdrawals account for 8.4% of all discontinuations, and up to 35% for some diseases. Without commercial withdrawals, the rate at which new drugs reach consumers would be 23% higher. Large subsidies for clinical trials help realize some of that gain, but the effect is small. Regulatory adjustments that marginally lower the probability of late-stage clinical failures can achieve the same results.