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Pharmaceutical Investment Saves Lives: Innovation in Cancer Treatments Well Worth the Cost

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A new NBER paper from Columbia University economist Frank Lichtenberg examines how pharmaceutical innovation correlates to fewer deaths among people with certain types of cancers. Fewer cancer patients died before the age of 75 if their particular type of cancer had experienced more medical innovation.

The basic message here is intuitive—new drugs and treatments save lives—but Lichtenberg does a good job of breaking down the costs and benefits. He estimates that medical innovation saved more than 100,000 years of aggregate life in Canada alone, at a cost of $2,730 per year based on the total spending for drugs to treat those forms of cancer.

Unfortunately, Lichtenberg does not factor in R&D costs for the discovery and development of these drugs. He does estimate the cost if the drugs had been brand name (versus the generics they are assumed to be), which comes out to $11,000. This is still significantly below estimates for the value of a year of life, and it is possible to assume that prices would be set by private companies high enough to recoup their research investments. This leaves only the question of public investments in R&D; given that R&D costs are only incurred once, while the benefits are open-ended, it makes sense to assume the benefits significantly exceed the costs.

Beyond the sometimes crass cost-benefit analyses, the benefits for people’s lives are straightforward. Although the cancer rate state stayed the same, premature mortality (deaths before age 75) due to cancer decreased 20% between 1996 and 2006, primarily due to better treatment. As Lichtenberg explains, “During the period 2000-2011, the premature (before age 75) cancer mortality rate… declined by about 9%. …in the absence of pharmaceutical innovation during the period 1985-1996, the premature cancer mortality rate would have increased about 12% during the period 2000-2011.” Figure 8 from Lichtenberg’s paper shows how drastically new treatments impacted cancer deaths:

fig8While some people claim that all the most important innovations have already taken place or that innovation is simply getting too expensive and producing too little results, we must keep the value of innovation in perspective. Pharmaceutical innovations have produced tangible results for thousands of cancer patients (in both Canada and the rest of the world), and these innovations will continue to pay back many times their initial investment. Even as innovation gets more expensive, its benefits remain far above the costs—but we need public investment in these areas because private businesses are unable to shoulder the same level of risk as the public sector.

(photo credit: e-Magine Art)

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About the author

Ben Miller is ITIF’s Economic Growth Policy Analyst, specializing in the connection between technology, innovation, and everything else in the macroeconomy.