IDEAS home Printed from https://ideas.repec.org/a/kap/hcarem/v16y2013i4p300-313.html
   My bibliography  Save this article

What is the value of ‘me-too’ drugs?

Author

Listed:
  • Stephane Régnier

Abstract

The objective of this article is to estimate the value of ‘follow-on’ or ‘me-too’ drugs from the payer, industry and societal perspectives. Since me-too drugs do not bring additional clinical benefits, they are only valuable to payers if they save costs. An empirical model was constructed to identify the factors affecting whether a me-too drug results in cost savings to the pharmaceutical budgets of payers. These factors included the intensity of promotional spending, price discount and time to entry. Twenty-seven second-entrant products with limited differentiation were identified; their launch dates ranged from 1988 to 2009. On average, me-too drugs launch 2.5 years after the first entrant, with 20 % more promotional investment, and capture 38 % of market share within 4 years. Peak market share is significantly affected by share of voice (p > 0.001) but not price discount (p = 0.77). Launch delay was significant in terms of reducing both market share (p > 0.001) and price (p > 0.05). With a launch price 15 % below the incumbent, cumulative savings from use of a me-too drug peak at over $1000 million, but decrease rapidly after the first entrant becomes generic and only amount to $450 million over the me-too drug’s lifecycle. With a price discount less than 10 %, cumulative savings are negative over the life of the me-too drug. Therefore, me-too drugs may be cost saving in the short term, but can represent a cost in the longer term. From a societal perspective, me-too drugs always decrease the economic surplus if they do not grow the market. If me-too drugs grow the market by 20 %, they augment, on average, the economic surplus only if the variable costs (including promotional investment) do not increase by more than $300 million per year. Copyright Springer Science+Business Media New York 2013

Suggested Citation

  • Stephane Régnier, 2013. "What is the value of ‘me-too’ drugs?," Health Care Management Science, Springer, vol. 16(4), pages 300-313, December.
  • Handle: RePEc:kap:hcarem:v:16:y:2013:i:4:p:300-313
    DOI: 10.1007/s10729-013-9225-3
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10729-013-9225-3
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s10729-013-9225-3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Marc Fischer & Peter Leeflang & Peter Verhoef, 2010. "Drivers of peak sales for pharmaceutical brands," Quantitative Marketing and Economics (QME), Springer, vol. 8(4), pages 429-460, December.
    2. Marcel Corstjens & Edouard Demeire & Ira Horowitz, 2005. "New-product success in the pharmaceutical industry: how many bites at the cherry?," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 14(4), pages 319-331.
    3. Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February.
    4. Gurumurthy Kalyanaram & Glen L. Urban, 1992. "Dynamic Effects of the Order of Entry on Market Share, Trial Penetration, and Repeat Purchases for Frequently Purchased Consumer Goods," Marketing Science, INFORMS, vol. 11(3), pages 235-250.
    5. Pierre Azoulay, 2002. "Do Pharmaceutical Sales Respond to Scientific Evidence?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 11(4), pages 551-594, December.
    6. Prins, R. & Verhoef, P.C., 2007. "Marketing Communication Drivers of Adoption Timing of a New E-Service among Existing Customers," ERIM Report Series Research in Management ERS-2007-018-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    7. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Leila Agha & Soomi Kim & Danielle Li, 2020. "Insurance Design and Pharmaceutical Innovation," NBER Working Papers 27563, National Bureau of Economic Research, Inc.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Erik Gronqvist & Douglas Lundin, 2009. "Incentives for clinical trials," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(5), pages 513-531.
    2. Marc Fischer & Peter Leeflang & Peter Verhoef, 2010. "Drivers of peak sales for pharmaceutical brands," Quantitative Marketing and Economics (QME), Springer, vol. 8(4), pages 429-460, December.
    3. Patricia M. Danzon & Eric L. Keuffel, 2014. "Regulation of the Pharmaceutical-Biotechnology Industry," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 407-484, National Bureau of Economic Research, Inc.
    4. Verniers, Isabel & Stremersch, Stefan & Croux, Christophe, 2011. "The global entry of new pharmaceuticals: A joint investigation of launch window and price," International Journal of Research in Marketing, Elsevier, vol. 28(4), pages 295-308.
    5. Brekke, Kurt R. & Kuhn, Michael, 2006. "Direct to consumer advertising in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 25(1), pages 102-130, January.
    6. Anita Rao, 2020. "Strategic Research and Development Investment Decisions in the Pharmaceutical Industry," Marketing Science, INFORMS, vol. 39(3), pages 564-586, May.
    7. Dranove, David & Garthwaite, Craig & Heard, Christopher & Wu, Bingxiao, 2022. "The economics of medical procedure innovation," Journal of Health Economics, Elsevier, vol. 81(C).
    8. Margaret K. Kyle, 2019. "The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals," NBER Chapters, in: Innovation Policy and the Economy, Volume 20, pages 95-123, National Bureau of Economic Research, Inc.
    9. de Frutos, Maria-Angeles & Ornaghi, Carmine & Siotis, Georges, 2013. "Competition in the pharmaceutical industry: How do quality differences shape advertising strategies?," Journal of Health Economics, Elsevier, vol. 32(1), pages 268-285.
    10. Moshe Levy & Adi Rizansky Nir, 2014. "The Pricing of Breakthrough Drugs: Theory and Policy Implications," PLOS ONE, Public Library of Science, vol. 9(11), pages 1-12, November.
    11. William S. Comanor & Stuart O. Schweitzer, 2007. "Determinants of drug prices and expenditures," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 357-370.
    12. Joseph DiMasi & Cherie Paquette, 2005. "The economics of follow-on drug research and development: Trends in entry rates and the timing of development — The authors’ reply," PharmacoEconomics, Springer, vol. 23(12), pages 1193-1202, December.
    13. Dahm, Matthias & González, Paula & Porteiro, Nicolás, 2009. "Trials, tricks and transparency: How disclosure rules affect clinical knowledge," Journal of Health Economics, Elsevier, vol. 28(6), pages 1141-1153, December.
    14. Jie Chen & John Rizzo, 2012. "Pricing dynamics and product quality: the case of antidepressant drugs," Empirical Economics, Springer, vol. 42(1), pages 279-300, February.
    15. Yaroslav Kryukov, "undated". "Dynamic R&D and the Effectiveness of Policy Intervention in the Pharmaceutical Industry," GSIA Working Papers 2015-E33, Carnegie Mellon University, Tepper School of Business.
    16. Joseph P Cook, 2014. "Real Option Value and Path Dependence in Oncology Innovation," Seminar Briefing 000077, Office of Health Economics.
    17. John Cawley & John A. Rizzo, 2005. "The Competitive Effects of Drug Withdrawals," NBER Working Papers 11223, National Bureau of Economic Research, Inc.
    18. Paolo Pertile & Simona Gamba & Martin Forster, 2018. "Free-Riding in Pharmaceutical Price Regulation: Theory and Evidence," Discussion Papers 18/04, Department of Economics, University of York.
    19. Susan Brudvig & Michael J. Brusco & J. Dennis Cradit, 2019. "Joint selection of variables and clusters: recovering the underlying structure of marketing data," Journal of Marketing Analytics, Palgrave Macmillan, vol. 7(1), pages 1-12, March.
    20. Risselada, Hans & Verhoef, Peter C. & Bijmolt, Tammo H.A., 2010. "Staying Power of Churn Prediction Models," Journal of Interactive Marketing, Elsevier, vol. 24(3), pages 198-208.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:hcarem:v:16:y:2013:i:4:p:300-313. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.