Abstract
This paper studies how pharmaceutical life cycles depend on a drug's degree of therapeutic innovation. A unique data set rates all the 414 New Chemical Entities (NCEs) introduced in Sweden between 1987 and 2000 into one of three FDA innovation classes: A (important therapeutic gains); B (modest gains); and C "metoo" drugs with little gains). This data is combined with sales figures for the 1987-2007 period. Regression analysis controlling for time effects and anatomical group shows that, over a 15-year life cycle, the average class A drug raises 15% higher revenues than B drugs and 114% higher revenues than C drugs (using a 4% discount rate). However, yearly sales for class A drugs are only significantly higher than for me-too drugs in year 14-17 after launch. Class B drugs, on the other hand, display significantly higher sales than C drugs in year 1-11 after launch. Sales of the most innovative drugs are initially weak and characterized by a high variance. When pooling A and B drugs to compare innovative and imitative (class C) drugs, we find 15-year life cycle revenues of the former to exceed those of imitative drugs by 100%. The sales difference is significant in 19 out of 20 years after launch. Finally, we find evidence of a first-mover advantage analyzing first and second mover sales differences.