Skip to main content

The Impact of Incremental Innovation in Biopharmaceuticals

Drug Utilisation in Original and Supplemental Indications


Background: The apparent decrease in the rate of approval of new molecular entities has provoked extensive discussion and fears that the productivity of biopharmaceutical research and development has severely declined in recent years.

Objective: To investigate the extent to which traditional measures of innovative output neglect important innovations that occur after a drug receives initial market approval.

Methods and Results: Data on drug utilisation by diagnosis for the period 1999–2004 were combined with data on the approval histories of three important classes of drugs: ACE inhibitors, histamine H2-antagonists/proton-pump inhibitors, and selective serotonin/norepinephrine reuptake inhibitors. Counts of new drug approvals by the FDA were classified as new indications, new dosages, new combinations, new formulations, and labeling for expanded populations. Large numbers of such “supplemental” approvals were obtained. The share of drug utilisation in indications other than that specified in the initially approved labeling was computed, and found to be very substantial in two out of the three drug classes considered.

Conclusions: Significant incremental innovation to existing pharmaceutical products has been occurring in the form of supplementary approvals for new dosages, formulations, and indications. These innovations account for a substantial share of drug utilisation and associated economic and medical benefits. Productivity trends for research and development based on counts of new molecular entities alone have therefore overlooked an important source of innovation in biopharmaceuticals.

This is a preview of subscription content, access via your institution.


  1. 1.

    El Feki S. Prescription for change. The Economist 2005 Jun 16

    Google Scholar 

  2. 2.

    Comanor WS. Research and technical change in the pharmaceutical industry. Rev Econ Stat 1965; 47: 182–90

    Article  Google Scholar 

  3. 3.

    Vernon JM, Gusen P. Technical change and firm size: the pharmaceutical industry. Rev Econ Stat 1974; 56: 294–302

    Article  Google Scholar 

  4. 4.

    Mason T. R&D productivity: how should it be measured? A perspective based on fundamental principles. Presentation to Drug Information Association, Annual Meeting, Washington, DC, 2004 Jun 15

  5. 5.

    Dranove D, Meltzer D. Do important drugs reach the market sooner? RAND J Econ 1994; 25: 402–22

    Article  Google Scholar 

  6. 6.

    Wardell WM, DiRaddo J. The measurement of pharmaceutical innovation. J Clin Pharmacol 1980; 20: 1–9

    PubMed  CAS  Google Scholar 

  7. 7.

    Spivey RN, Lasagna L, Trimble AG. New indications for already-approved drugs: time trends for the new drug application review phase. Clin Pharmacol Ther 1987; 41(4): 368–70

    PubMed  Article  CAS  Google Scholar 

  8. 8.

    Beales JH III. New uses for old drugs. In: Helms RB, editor, Competitive strategies in the pharmaceutical industry. Washington, DC: AEI Press for the American Enterprise Institute, 1996: 281–305

    Google Scholar 

  9. 9.

    Corey L, Wald A, Patel R, et al. Once-daily valacyclovir to reduce the risk of transmission of genital herpes. N Engl J Med 2004; 350(1): 11–20

    PubMed  Article  CAS  Google Scholar 

  10. 10.

    DiMasi JA, Hansen RW, Grabowski HG. The price of innovation: new estimates of drug development costs. J Health Econ 2003; 22: 151–85

    PubMed  Article  Google Scholar 

  11. 11.

    Frank RG. Editorial: new estimates of drug development costs. J Health Econ 2003; 22(2): 325–30

    PubMed  Article  Google Scholar 

  12. 12.

    Graham JB. Trends in U.S. regulatory approvals of biopharmaceutical therapeutic entities [SM thesis]. Cambridge (MA): Harvard-MIT Division of Health Sciences and Technology, 2005 Jan

    Google Scholar 

  13. 13.

    Tufts Center for the Study of Drug Development. Glossary of terms. Dated 7 January 2005 [online]. Available from: [Accessed 2005 Jan 13]

  14. 14.

    NitroMed. FDA approves BiDil for treatment of heart attack failure in black patients. Press release dated 23 June 2005 [online]. Available from: [Accessed 2005 Jul 4]

    Google Scholar 

  15. 15.

    Berndt ER, Russell JM. Who will dance with cyberonics? Part A of an MIT Sloan School Case Study. Cambridge (MA): MIT Sloan School, Mimeo, 2003 Oct 9

    Google Scholar 

  16. 16.

    von Hippel E. Democratizing innovation. Cambridge (MA): MIT Press, 2005

    Google Scholar 

  17. 17.

    von Hippel E. The sources of innovation. Oxford: Oxford University Press, 1998

    Google Scholar 

  18. 18.

    DiMasi JA, Paquette C. The economics of follow-on drug research and development. Pharmacoeconomics 2004; 22 Suppl. 2: 1–14

    PubMed  Article  Google Scholar 

  19. 19.

    Kessler DA, Rose JL, Temple RJ et al. Theraputic class wars: drug promotion in a competitive marketplace. New Eng J Med 1994; 331: 1350–3

    PubMed  Article  CAS  Google Scholar 

  20. 20.

    Chen H, Deshpande AD, Jiang R, Martin BC. An epidemiological investigation of off-label anticonvulsant drug use in the Georgia Medicaid population. Pharmacoepidemiol Drug Saf. 2005; 14:629–38

    PubMed  Article  Google Scholar 

  21. 21.

    Debrix I, Andre T, Becker A, et al. Anticancer drugs off label used of: what do the experts think? [in French]. Bull Cancer 2004; 91(10): 769–77

    PubMed  Google Scholar 

  22. 22.

    DiMasi JA, Brown JA, Lasagna L. An analysis of regulatory review times of supplemental indications for already-approved drugs: 1989 to 1994. Drug Inform J 1996; 30(2): 315–37

    Article  Google Scholar 

  23. 23.

    Pomerantz JM, Finkelstein SN, Berndt ER, et al. Prescriber intent, off-label usage, and early discontinuation of antide-pressants: a retrospective physician survey and data analysis. J Clin Psychiatry 2004; 65(3): 395–404

    PubMed  Article  Google Scholar 

  24. 24.

    Radley DC. Off-label prescription among office-based physicians: trends, predictors, and regulatory implications [unpublished thesis for the Master in Public Health degree]. New Haven (CT): Yale University School of Epidemiology and Public Health, 2003

    Google Scholar 

  25. 25.

    Radley D, Stafford R, Finkelstein S, Cockburn I. Off-label prescription among outpatient physicians [Powerpoint presentation]. Academy Health Meetings; 2004 Jun 6–8; San Diego (CA)

  26. 26.

    Stern RS. Drug promotion for an unlabeled indication — the case of topical tretinoin. N Engl J Med 1994; 331(20): 1348–9

    PubMed  Article  CAS  Google Scholar 

  27. 27.

    Pomerantz JM. The widespread utility of antidepressants. Drug Benefit Trends 2001; 13(11): 34BH–35BH

    Google Scholar 

  28. 28.

    US FDA. Drugs@FDA [online] [Accessed 4 July 2005]

  29. 29.

    IMS America. Information services manual. IMS America: Plymouth Meeting; 1996; Pennsylvania (PA)

  30. 30.

    Stafford R, Furberg C, Finkelstein S, et al. The impact of clinical trial results on national trends in alpha-blocker prescribing, 1996–2002. JAMA 2004; 291: 54–62

    PubMed  Article  CAS  Google Scholar 

  31. 31.

    Pomerantz JM. Deliberate misdiagnosis of behavior health disorders. Drug Benefit Trends 2003; 15: 34BH–35BH.

    Google Scholar 

  32. 32.

    Sankar P, Kahn J. BiDil: race medicine or race marking? Health Aff (Millwood) 2005; 24:W5: 455–62

    Google Scholar 

  33. 33.

    Berndt ER, Bhattacharjya A, Mishol D, et al. An analysis of the diffusion of new antidepressants: variety, quality, and marketing efforts. J Ment Health Pol Econ 2002; 5(1): 323–48

    Google Scholar 

  34. 34.

    Berndt ER, Pindyck RS, Azoulay P. Consumption externalities and diffusion in pharmaceutical markets: antiulcer drugs. J Ind Econ 2003; 51(2): 243–70

    Article  Google Scholar 

Download references

Author information



Corresponding author

Correspondence to Ernst R. Berndt.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Berndt, E.R., Cockburn, I.M. & Grépin, K.A. The Impact of Incremental Innovation in Biopharmaceuticals. PharmacoEconomics 24, 69–86 (2006).

Download citation


  • Prevacid
  • Herfindahl Index
  • Incremental Innovation
  • Paxil
  • Biologics License Application