The distribution of sales revenues from pharmaceutical innovation

Objective: This report updates our earlier work on the returns to pharmaceu tical research and development (R&D) in the US (1980 to 1984), which showed that the returns distributions are highly skewed. It evaluates a more rece nt cohort of new drug introductions in the US (1988 to 1992) and examines h ow the returns distribution is emerging for drugs with life cycles concentr ated in the 1990s versus the 1980s. Design and setting: Methods were described in detail in our earlier reports . The current sample included 110 new drug entities (including 28 orphan dr ugs), and sales data were obtained for the period 1988 to 1998, which repre sented between 7 and 11 years of sales for the drugs included. 20 years was chosen as the expected market life for this cohort, and a 2-step procedure was used to project future sales for the drugs - during the period until p atent expiry and then beyond patent expiry until the 20-year rime-horizon w as completed. Thus, the values in the first half of the life cycle are esse ntially based on realised sales, while those in the second half are project ed using information on patent expiry and other inputs. Main outcome measures and results: Peak annual sales for the top decile of drugs introduced between 1988 and 1992 in the US amounted to almost $US1.1 billion compared with peak sales of less than $US175 million (1992 values) for the mean compound. In particular, the top decile accounted for 56% of o verall sales revenue. Although the sales distributions were skewed in both our earlier and current analysis, the top decile in the later rime-period e xhibited more rapid rates of growth after launch, a peak that was more than 50% greater in real terms than for the 1980 to 1984 cohort, and a faster r ate of expected decline in sales after patent expiry. One factor contributi ng to the distribution of sales revenues becoming more skewed over time is the orphan drug phenomenon (i.e. most of the orphan drugs are concentrated at the bottom of the distribution). Conclusion: The distribution of sales revenues for new drug compounds is hi ghly skewed in nature. In this regard, the top decile of new drugs accounts for more than half of the total sales generated by the 1988 to 1992 cohort analysed. Furthermore, the distribution of sales revenues for this cohort is more skewed than that of the 1980 to 1984 cohort we analysed in previous research.