FDA New Drug Approval Times, Prescription Drug User Fees, and R & D Spending

Abstract

FDA-approval times have declined significantly since the enactment of the Prescription Drug User Fee Act (PDUFA) in 1992. As a result, present value expected returns to pharmaceutical R&D have likely increased. In the current paper we employ a unique survey dataset, which includes for the first time data on firm-level pharmaceutical R&D. We estimate the effects that FDA-approval times have on R&D investments. Controlling for other factors such as pharmaceutical profitability and cash flows, we find that a 10 percent decrease (increase) in FDA-approval times results in a 1.7 percent in increase (decrease) in R&D spending.Combining this estimate with previous research and publicly available data on industry-level pharmaceutical spending between 1992 and 2001, we conclude PDUFA, and its subsequent renewals, stimulated an additional 13.5 billion in pharmaceutical R&D (2005 U.S.), and has presumably continued to do so since 2001. Recent economic research has shown the social rate of return on pharmaceutical R&D is remarkably high; thus, the social benefits of PDUFA (over and above the benefits of more rapid consumer access) are likely to be substantial.