The pharmaceutical industry has been criticized for developing and aggressively marketing drugs that do not provide significant health benefits relative to existing drugs but retain the benefits of patent protection. Critics argue that drug marketing increases health care expenditures and provides a disincentive for pioneering drug innovation. However, evidence that marketing expenditures have any relationship to new drug approvals has been anecdotal. We hypothesized that, at publicly traded pharmaceutical firms, increased marketing expenditures will result in a reduced volume of pioneering new drugs in comparison to less innovative new drugs. We also hypothesized that additional research and development spending will result in an increased volume of pioneering new drugs in comparison to less innovative drugs. Results confirm our hypotheses. Specific policy recommendations for altering firms' incentives for the development of pioneering drugs are provided.
Keywords: health care reform; innovation; marketing; patent; pharmaceutical industry.
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