Will the PPACA Drug Provision Cause Pharmaceutical Companies to Divest in Low-return Therapies?

Open Access
Author:
Jaffer, Zahra
Area of Honors:
Risk Management
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
  • Mark Richard Gruskin, Thesis Supervisor
  • Ron Gebhardtsbauer, Honors Advisor
  • Todd Matthew Retzlaff, Faculty Reader
Keywords:
  • ACA
  • PPACA
  • Pharmaceutical
  • Pfizer
  • Merck
  • Johnson and Johnson
  • drug
  • brand-name
  • generic
  • pipeline
  • therapy
  • R&D
Abstract:
The Patient Protection and Affordable Care Act (PPACA), signed into law in 2010, passed a provision that reduced drug product exclusivity from 20 to 12 years. The purpose of this study is to determine if this provision will further reduce incentive for pharmaceutical companies to invest in innovative drugs in low net return therapeutic areas. This is especially important because even though consumers may benefit in the short run due to increased generic drugs, pharmaceutical companies’ lack of motivation can actually be bad for consumers in the long run. In order to calculate this risk, this investigation will be examining the drug pipeline of three major American pharmaceutical companies from 2011 to 2015: Pfizer, Merck, and Johnson & Johnson. The results suggest that Research and Development (R&D) efforts will usually shift towards high net return and away from low net return therapeutic areas, which is consistent with model firm behavior.