Source: Thomas A. Abbott and John A Vernon, “The Cost of US Pharmaceutical Price Reductions: A Financial Simulation Model Of R&D Decisions,” NBER Working Paper 11114, February 2005.
Commentary: Proponents of capping drug prices often dismiss concerns about the impact on pharmaceutical R&D by pointing to the fact that drug prices are much lower internationally than in the United States. But this reasoning fails to consider that price restrictions in other countries have made pharmaceutical companies disproportionately reliant on revenue from the United States. The consequences of this are apparent in the findings of research into how pharmaceutical companies determine whether a new compound is promising enough to invest in clinical trials. One study estimates that a 10 percent reduction in U.S. drug prices would decrease the number of clinical trials that pharma companies pursue by approximately 5 percent, while a 40 percent reduction would decrease clinical trials by 50 to 60 percent, endangering our ability to fight and prevent diseases for decades to come.
