Effects of Regulation on Drug Launch and Pricing in Interdependent Markets

61 Pages Posted: 2 Jun 2008 Last revised: 3 Jun 2008

See all articles by Patricia M. Danzon

Patricia M. Danzon

University of Pennsylvania - Health Care Systems Department; National Bureau of Economic Research (NBER)

Andrew Joel Epstein

Yale University - School of Public Health

Date Written: May 2008

Abstract

This study examines the effect of price regulation and competition on launch timing and pricing of new drugs. Our data cover launch experience in 15 countries for drugs in 12 therapeutic classes that experienced significant innovation over the decade 1992-2003. We use prices of established products as a measure of the direct effect of a country's own regulatory system, and find that launch timing and prices of innovative drugs are influenced by prices of established products. Thus, if price regulation reduces drug prices, it contributes to launch delay in the home country. New drug launch hazards and launch prices in low-price countries are also affected by referencing by other, high-price countries, especially within the EU, as expected if manufacturers delay launch in low-price markets to avoid undermining higher prices in other countries. Thus, referencing policies adopted in high-price countries can impose welfare loss on low-price countries. Prices of new drugs are influenced mainly by prices of other drugs within the same subclass; however, dynamic competition from new subclasses undermines new drug launch in older subclasses. Association with a local firm accelerates launch only in certain regulated markets. These findings have implications for US proposals to constrain pharmaceutical prices in the US through external referencing and drug importation.

Suggested Citation

Danzon, Patricia M. and Epstein, Andrew Joel, Effects of Regulation on Drug Launch and Pricing in Interdependent Markets (May 2008). NBER Working Paper No. w14041. Available at SSRN: https://ssrn.com/abstract=1139357

Patricia M. Danzon (Contact Author)

University of Pennsylvania - Health Care Systems Department ( email )

3641 Locust Walk
Colonial Penn Center
Philadelphia, PA 19104-6358
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrew Joel Epstein

Yale University - School of Public Health

PO Box 208034
60 College Street
New Haven, CT 06520-8034
United States
203-785-6924 (Phone)

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