The effect of pharmaceutical innovation on longevity: Evidence from the U.S. and 26 high-income countries

Abstract

This study examines the impact that pharmaceutical innovation, which accounts for most private biomedical research expenditure, has had on longevity. We perform two types of two-way fixed-effects analyses, which control for the effects of many potentially confounding variables. First, we analyze long-run (2006–2018) changes in longevity associated with different diseases in a single country: the U.S. Then, we analyze relative longevity levels associated with different diseases in 26 high-income countries during a single time period (2006–2016). The measure of longevity we analyze, mean age at time of death, is strongly positively correlated across countries with life expectancy at birth. The measure of pharmaceutical innovation we use is the mean vintage (year of initial world launch) of the drugs used to treat each disease in each country. Changes in the vintage distribution of drugs are due to both entry of new drugs and exit of old drugs. Our analysis of U.S. data indicates that the diseases for which there were larger increases in drug vintage tended to have larger increases in the longevity of Americans of all races and both sexes. In other words, the lower the mean age of the drugs, the higher the mean age at death. We test, and are unable to reject, the “parallel trends” hypothesis. We estimate that the 2006–2018 increase in drug vintage increased the mean age at death of Americans by about 6 months (66% of the observed increase). Controlling for sex, race, and education has only a small effect on the estimate of the vintage coefficient. The estimates indicate that drug vintage did not have a significant effect on the mean age at death of decedents with less than 9 years of education. Drug vintage had a positive and significant effect on the mean age at death of decedents with at least 9 years of education, and a larger effect on the mean age at death of decedents with at least 13 years of education. The finding that pharmaceutical innovation has a larger effect on the longevity of people with more education is consistent with previous evidence that more educated people are more likely to use newer drugs. Our analysis of data on 26 high-income countries indicates that the higher the vintage of drugs available to treat a disease in a country, the higher mean age at death was, controlling for fixed disease and country effects. The increase in drug vintage is estimated to have increased mean age at death in the 26 countries by 1.23 years between 2006 and 2016—73% of the observed increase. We obtain estimates of the cost of pharmaceutical innovation—its impact on drug expenditure—as well as estimates of an important benefit of pharmaceutical innovation—the number of life-years gained from it—and of their ratio, i.e., the incremental cost-effectiveness ratio. Estimates of the cost per life-year gained for the U.S. and the 26 countries are $35,817 and $13,904, respectively. Both figures are well below per capita GDP in the respective regions, suggesting that, overall, pharmaceutical innovation was highly cost-effective.