Costs and Benefits of Selected Policy Tools to Promote Drug Development

The development of new drugs and biologics is critical to ensuring that the U.S. population continues to enjoy improvements in quality and length of life. However, pharmaceutical companies must balance this imperative with the need to earn economic returns when making investment decisions.  Some drugs, although desirable from a societal perspective, may have low expected revenues or associated development challenges, resulting in underinvestment from pharmaceutical companies. This report is intended to provide a useful starting point for critically evaluating the potential effectiveness and inherent tradeoffs of policy tools aimed at spurring additional pharmaceutical research and development (R&D) efforts for socially productive drugs. The report briefly describes how seven specific policy tools could be used to encourage R&D investment for needed new drugs in the United States: (1) accelerators, (2) R&D tax credits, (3) patent and regulatory exclusivity extensions, (4) delinkage, (5) priority review vouchers, (6) wildcard exclusivity vouchers, and (7) advance market commitments.