Explaining Early Adoption on New Medicines: Regulation, Innovation and Scale

33 Pages Posted: 27 May 2011

See all articles by Nebibe Varol

Nebibe Varol

London School of Economics & Political Science (LSE)

Alistair McGuire

London School of Economics & Political Science (LSE)

Joan Costa-Font

London School of Economics & Political Science (LSE)

Date Written: May 2011

Abstract

Understanding how price regulations affect the adoption of new patent-protected pharmaceutical technologies is a crucial question in designing health systems. This paper addresses this question by examining how price expectations shape the probability of launch, controlling for competition, market size expectations, firm and molecule heterogeneity across the major OECD markets during 1999-2008. Due to the censoring of launch data we use discrete time duration modelling with parametric and semi-parametric duration dependence specification. A sub-sample analysis including only EU countries also investigates the impact of price interdependencies and potential firm strategies in launch and pricing decisions. The empirical analysis of the global set of molecules which have diffused across more than 10 markets in the OECD, suggests there is a statistically significant and robust price effect in the adoption of new pharmaceutical technologies; low-prices result in reduced and slower adoption. Concentrated therapeutic subgroups, reflecting market crowding constitutes a significant barrier to entry. Sub-sample findings from the EU market suggest strategic firm behaviour with firms delaying launch in low-priced markets and attempts to maintain price differentials across interdependent markets to a minimum due to price complementarities. Firm economies of scale and the therapeutic importance of innovations are other important drivers of adoption speed.

Keywords: pharmaceutical innovation, regulation, adoption, duration analysis

JEL Classification: I110, L510

Suggested Citation

Varol, Nebibe and McGuire, Alistair and Costa-Font, Joan, Explaining Early Adoption on New Medicines: Regulation, Innovation and Scale (May 2011). CESifo Working Paper Series No. 3459. Available at SSRN: https://ssrn.com/abstract=1851330

Nebibe Varol

London School of Economics & Political Science (LSE) ( email )

Alistair McGuire

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Joan Costa-Font (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://https://joancostaifont.org/

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