For copies of papers please follow links below, see Google Scholar, or E-mail david.ridley((at))duke.edu

I am interested in innovation, pricing, and health policy. Much of my research concerns the biopharmaceutical industry. To encourage development of more biopharmaceutical treatments for neglected diseases, I, with Henry Grabowski and Jeffrey Moe, proposed a priority review voucher prize. The prize became law in 2007. I have also written a series of papers on business location. My papers on business location, like my research on biopharmaceuticals, explore new market entry, competition, and the influence of government policy.

Research Areas

A. Innovation

B. Pharmaceutical Prices

C. Health Care Costs

D. Business Location

Innovation
What are the incentives for drug development, especially for diseases that primarily affect poor people?

1. David B. Ridley, Henry G. Grabowski, and Jeffrey L. Moe. "Developing Drugs for Developing Countries." Health Affairs. 2006. Vol. 25, No. 2: 313-24. Appendix
   • We proposed a prize called a Priority Review Voucher to be awarded to the developer of a treatment for a neglected disease. In 2007 Senators Brownback (R-KS) and Brown (D-OH) sponsored an amendment to the Food and Drug Administration Amendments Act of 2007. President Bush signed the bill in September 2007.
   • Senator Brownback wrote, “After reading their proposal in Health Affairs, I met with Ridley and colleagues to discuss the idea further, and I subsequently drafted an amendment…Indeed, their idea is the heart of my Elimination of Neglected Diseases (END) amendment.” The Senator's complete comments are available at Health Affairs.
   • Bill Gates described our idea in his speech at the World Economic Forum in Davos in 2008: “But some of the highest-leverage work that government can do is to set policy and disburse funds in ways that create market incentives for business activity that improves the lives of the poor. Under a law signed by President Bush last year, any drug company that develops a new treatment for a neglected disease like malaria or TB can get priority review from the Food and Drug Administration for another product they've made. If you develop a new drug for malaria, your profitable cholesterol-lowering drug could go on the market a year earlier. This priority review could be worth hundreds of millions of dollars.” The speech is at the Gates Foundation web site.
2. Jeffrey L. Moe, Henry G. Grabowski, David B. Ridley, and Aaron S. Kesselheim. "FDA Review Vouchers." Correspondence in The New England Journal of Medicine. 2009. Vol., 360, No. 8: 837-838.
3. Henry G. Grabowski, David B. Ridley, and Jeffrey L. Moe. "Priority Review Vouchers to Encourage Innovation for Neglected Diseases.” In: K. Eggleston, ed. Prescribing Cultures and Pharmaceutical Policy in the Asia-Pacific. Brookings Institution Press. 2009.
4. David B. Ridley and Alfonso Calles Sánchez. "Introduction of European Priority Review Vouchers to Encourage Development of New Medicines for Neglected Diseases.” The Lancet. 2010. Vol. 376, No. 9744: 922–927.(preprint)
   To encourage development of medicines for neglected diseases we propose that European Union Member States adopt a priority review voucher program like that in the USA. The voucher program would reward a manufacturer that developed a new medicine for neglected diseases with a voucher that could be redeemed for priority review of a future medicine, probably a potential blockbuster drug. Unlike the US system a European voucher would also accelerate pricing and reimbursement decisions. This scheme would be likely to provide substantial benefits to voucher holders, society, and public health organisations.
5. Adrian Towse, Eric Keuffel, Hannah E. Kettler and David B. Ridley. "Drugs and Vaccines for Developing Countries.” Draft prepared for Oxford Handbook of Pharmaceutical Economics edited by P. Danzon and S. Nicholson. 2011.
6. James J. Anton and David B. Ridley. "Rewards for Followers in R&D Races and Implications for the Pharmaceutical Industry." (Working paper)
   Followers can provide variety and competition, but might duplicate fixed costs and reduce the rewards for innovators. Regulations that ban or require higher quality from followers affect competition downstream (prices quality softens price competition) and affect incentives for research and development upstream (decreasing rewards for followers increases the odds of getting an innovator).

Pharmaceutical Prices
How sensitive is demand to copayments and advertising? How does competition affect generic prices? Do Americans pay higher prices for pharmaceuticals than people in other rich countries? How can we encourage lower prices for poor countries?

1. David B. Ridley. "Payments, Promotion, and the Purple Pill." (Working paper)
   Understanding competition in the drug industry requires understanding how sensitive demand is to prices. The relevant prices for insured consumers are copayments. Estimates of copayment elasticity abound, but not estimates controlling for competition from other branded products, because of the paucity of data. Whereas previous studies examined copayment sensitivity when copayments for branded drugs moved in unison, this study examines copayment sensitivity when copayments diverge. The study uses unique panel data of insurance copayments and utilization for 77 insurance groups, as well as data on advertising. The results indicate that demand is much more sensitive to copayment than previously recognized. Manufacturers selling drugs with higher copayments than branded competitors can lose substantial market share. Manufacturers can offset the loss of demand by greater advertising to physicians, but it is costly.
2. Henry G. Grabowski, David B. Ridley, and Kevin A. Schulman. "Entry and Competition in Generic Biologics." Managerial and Decision Economics. 2007. Vol. 28: 439-451. (preprint)
   Two hurdles limit approvals of generic biologics. First, the biotechnology industry is young, so few patents have expired for major biologic products. Second, Congress has not yet approved an abbreviated pathway for generic biologics. An abbreviated pathway would allow generic biologics, like generic pharmaceuticals, to enter the market with little costly clinical testing. For generic pharmaceuticals, costly clinical trials are not required, rather generic pharmaceutical manufacturers are only required to provide evidence of bioequivalence. To understand how a policy change will create a market for generic biologics, we use a simple theoretical model of monopolistic competition (free entry with differentiated products) and simulations with data from generic pharmaceuticals. We predict that generic biologics will have high fixed costs from clinical testing and from manufacturing, which implies there will be less entry than would be expected for generic pharmaceuticals. With fewer generic competitors, generic biologics will be relatively close in price to branded biologics. People often assume that generics are inherently cheap, but not when there are few competitors.
3. David B. Ridley and Kirsten Axelsen. "Impact of Medicaid Preferred Drug Lists on Therapeutic Adherence." Pharmacoeconomics. 2006. Vol. 24, Suppl. 3: 65-78.
   Increasingly, private insurers are using differences in patient copayments to drive market share to lower-price drugs, but the same tool is not available for state Medicaid programs. State Medicaid programs are prohibited from charging copayments above $3 to low income patients. Instead, state Medicaid programs use preferred drug lists: the less-expensive branded drug is on the list and thus paid for; the more-expensive branded drug is off the list; and payment for drugs that are off the list requires government permission. The objective of the program is to encourage doctors to prescribe cheaper drugs on the list. Doctors, however, often prescribe drugs off the list; so when a Medicaid patient goes to the pharmacy with a prescription for a more expensive drug, the pharmacist tells the patient that she needs either a new prescription or government permission for the old prescription. We find that many Medicaid patients simply give up and do not get any medication. We compare medication across states and over time. Alabama, for instance, implemented a preferred drug list to encourage use of a cheaper cholesterol medicine and discourage use of a more expensive cholesterol medicine. We find that 51 percent of patients in Alabama were non-adherent with cholesterol therapy after the policy change compared with 39 percent before. Non-adherence in North Carolina (which has similar demographics but no policy change) was 36 percent in both periods.
4. David B. Ridley. "International Price Comparisons for Novel and Follow-On Drugs." Value in Health. 2007. Vol. 10, No. 6: 510-511.
   Prices for novel drugs tend to be about the same in the U.S. as in other rich countries, prices for less novel drugs tend to be higher in the U.S. than in other rich countries (but this does not account for confidential rebates), and prices for generic drugs tend to be lower in the U.S. than in other rich countries because the large U.S. market attracts many generic competitors which compete down generic prices.
5. Margaret K. Kyle and David B. Ridley. "Would Greater Transparency and Uniformity of Health Care Prices Benefit Poor Patients?" Health Affairs. 2007. Vol. 26, No. 5: 1384-1391.
   We show that the effect of price transparency on profits and welfare depends on the type of price transparency. In the first type of transparency, the consumer is aware of the price for a treatment before receiving it. Increasing the first type of transparency is the focus of efforts to bring consumerism to health care in the United States. In the second type of transparency, the buyer is aware of the price paid by others. Pharmaceutical manufacturers tend not to adopt this form of transparency. Manufacturers make prices transparent to the buyer paying the price, but not to other buyers paying different prices. Increasing the second type of transparency is an objective of the World Health Organization which is posting international pharmaceutical price comparisons. Increasing the second type of transparency undermines differential pricing and can lead to higher prices for poor people. Hence, transparency is not uniformly beneficial for consumers.
6. David B. Ridley. "Price Differentiation and Transparency in the Global Pharmaceutical Marketplace." Pharmacoeconomics. 2005. Vol. 23, No. 7: 651-658.
   The World Health Organization's well-meaning effort to compare the price of a given molecule across manufacturers and across countries has insufficient adjustments for drug quality variations; uses price ratios rather than price levels; artificially measures countries’ wealth (for example, using a country’s lowest-paid unskilled government worker); disregards patents; is too slow in adjusting to changes in prices, inflation, and exchange rates; and requires procurement prices which are difficult to obtain since rebates and discounts are often confidential.
7. David B. Ridley and Kevin A. Schulman. "Differential Pricing of Pharmaceuticals in the Internet Age." Journal of Ambulatory Care Management. 2004. Vol. 27, No. 3: 210-214.
   The Internet provides healthcare consumers with more information about available prices and provides pharmaceutical manufacturers with more information about consumers' willingness to pay. The former effect tends to undermine price differences while the latter tends to support them. We expect the former effect to dominate and the Internet to undermine differential pricing of pharmaceuticals.