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Effects of Regulation on Drug Launch and Pricing in Interdependent Markets

In: The Economics of Medical Technology

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  • Patricia M. Danzon
  • Andrew J. Epstein

Abstract

Purpose – This study examines the effect of price regulation and competition on launch timing and pricing of new drugs. Methods – Our data cover launch experience in 15 countries from 1992 to 2003 for drugs in 12 major therapeutic classes. We estimate a two-equation model of launch hazard and launch price of new drugs. Findings – We find that launch timing and prices of new drugs are related to a country's average prices of established products in a class. Thus to the extent that price regulation reduces price levels, such regulation directly contributes to launch delay in the regulating country. Regulation by external referencing, whereby high-price countries reference low-price countries, also has indirect or spillover effects, contributing to launch delay and higher launch prices in low-price referenced countries. Implications – Referencing policies adopted in high-price countries indirectly impose welfare loss on low-price countries. These findings have implications for US proposals to constrain pharmaceutical prices through external referencing and drug importation.

Suggested Citation

  • Patricia M. Danzon & Andrew J. Epstein, 2012. "Effects of Regulation on Drug Launch and Pricing in Interdependent Markets," Advances in Health Economics and Health Services Research, in: The Economics of Medical Technology, pages 35-71, Emerald Group Publishing Limited.
  • Handle: RePEc:eme:aheszz:s0731-2199(2012)0000023005
    DOI: 10.1108/S0731-2199(2012)0000023005
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    1. Margaret K. Kyle, 2007. "Pharmaceutical Price Controls and Entry Strategies," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 88-99, February.
    2. Jean O. Lanjouw, 2005. "Patents, Price Controls and Access to New Drugs: How Policy Affects Global Market Entry," Working Papers 61, Center for Global Development.
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    Cited by:

    1. Nicolas Houy & Izabela Jelovac, 2015. "Drug Launch Timing and International Reference Pricing," Health Economics, John Wiley & Sons, Ltd., vol. 24(8), pages 978-989, August.
    2. Patricia M. Danzon & Andrew W. Mulcahy & Adrian K. Towse, 2015. "Pharmaceutical Pricing in Emerging Markets: Effects of Income, Competition, and Procurement," Health Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 238-252, February.
    3. Santanu Roy & Kamal Saggi, 2023. "Equilibrium parallel import policies and international market structure," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 15, pages 349-363, World Scientific Publishing Co. Pte. Ltd..
    4. Santanu Roy & Kamal Saggi, 2012. "Strategic competition and optimal parallel import policy," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(4), pages 1369-1396, November.
    5. Patricia Danzon;Martina Garau;Adrian Towse, 2011. "Pharmaceutical Pricing in Europe: Is Differential Pricing a Win-Win Solution?," Occasional Paper 000191, Office of Health Economics.
    6. Margaret Kyle & Yi Qian, 2014. "Intellectual Property Rights and Access to Innovation: Evidence from TRIPS," NBER Working Papers 20799, National Bureau of Economic Research, Inc.
    7. Amnon Frenkel & Shlomo Maital & Eran Leck & Emil Israel, 2015. "Demand-Driven Innovation: An Integrative Systems-Based Review of the Literature," International Journal of Innovation and Technology Management (IJITM), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 1-31.
    8. Brekke, Kurt R. & Dalen, Dag Morten & Straume, Odd Rune, 2023. "The price of cost-effectiveness thresholds under therapeutic competition in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 90(C).
    9. Javier Coronado & Sergi Jiménez-Martín & Pedro L Marín, 2007. "Multimarket Contact in Pharmaceutical Markets," Working Papers 303, Barcelona School of Economics.
    10. Koenig, Pamina & MacGarvie, Megan, 2011. "Regulatory policy and the location of bio-pharmaceutical foreign direct investment in Europe," Journal of Health Economics, Elsevier, vol. 30(5), pages 950-965.
    11. Melanie Büssgen & Tom Stargardt, 2023. "Does health technology assessment compromise access to pharmaceuticals?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 24(3), pages 437-451, April.
    12. Ebenezer Tetteh, 2009. "Implementing differential pricing for essential medicines via country-specific bilateral negotiated discounts," Applied Health Economics and Health Policy, Springer, vol. 7(2), pages 71-89, June.
    13. Antonio Cabrales & Sergi Jiménez‐Martín, 2013. "The Determinants Of Pricing In Pharmaceuticals: Are Us Prices Really So High?," Health Economics, John Wiley & Sons, Ltd., vol. 22(11), pages 1377-1397, November.
    14. Zhang, Wei & Guh, Daphne P. & Grootendorst, Paul & Hollis, Aidan & Anis, Aslam H., 2024. "The impact of changing the reference countries on the list prices for patented medicines in Canada: A policy analysis," Health Policy, Elsevier, vol. 144(C).
    15. Ernst Berndt & Nathan Blalock & Iain Cockburn, 2011. "Diffusion of New Drugs in the Post-TRIPS Era," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 18(2), pages 203-224.
    16. Jobjörnsson, Sebastian & Forster, Martin & Pertile, Paolo & Burman, Carl-Fredrik, 2016. "Late-stage pharmaceutical R&D and pricing policies under two-stage regulation," Journal of Health Economics, Elsevier, vol. 50(C), pages 298-311.
    17. Eric W. Bond & Kamal Saggi, 2023. "Bargaining over Entry with a Compulsory License Deadline: Price Spillovers and Surplus Expansion," World Scientific Book Chapters, in: Kamal Saggi (ed.), Technology Transfer, Foreign Direct Investment, and the Protection of Intellectual Property in the Global Economy, chapter 20, pages 449-480, World Scientific Publishing Co. Pte. Ltd..
    18. Abdulkadir Civan & Michael Maloney, 2017. "Launch Decisions of Pharmaceutical Companies," Journal of Economics and Financial Analysis, Tripal Publishing House, vol. 1(1), pages 35-58.
    19. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2017. "The Dynamics of Pharmaceutical Regulation and R&D Investments," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 19(1), pages 121-141, February.
    20. Ali Bonakdar Tehrani & Norman V. Carroll, 2017. "The Medicaid Rebate: Changes in Oncology Drug Prices After the Affordable Care Act," Applied Health Economics and Health Policy, Springer, vol. 15(4), pages 513-520, August.
    21. Albane Degrassat-Théas & Pascal Paubel & Olivier Parent de Curzon & Claude Pen & Martine Sinègre, 2013. "Temporary Authorization for Use: Does the French Patient Access Programme for Unlicensed Medicines Impact Market Access After Formal Licensing?," PharmacoEconomics, Springer, vol. 31(4), pages 335-343, April.
    22. Puig-Junoy, Jaume & López-Valcárcel, Beatriz González, 2014. "Launch prices for new pharmaceuticals in the heavily regulated and subsidized Spanish market, 1995–2007," Health Policy, Elsevier, vol. 116(2), pages 170-181.
    23. Margaret K. Kyle, 2019. "The Single Market in Pharmaceuticals," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 55(1), pages 111-135, August.
    24. Sotiris Vandoros, 2014. "Therapeutic Substitution Post‐Patent Expiry: The Cases Of Ace Inhibitors And Proton Pump Inhibitors," Health Economics, John Wiley & Sons, Ltd., vol. 23(5), pages 621-630, May.

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    More about this item

    Keywords

    Pharmaceutical economics; drug pricing;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • K2 - Law and Economics - - Regulation and Business Law
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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