Drug approval decision times, international reference pricing and strategic launches of new drugs

This paper analyzes how drug approval procedures influence the incentives of pharmaceutical firms to launch new drugs in the presence of international reference pricing. First, we show that the set of countries in which a firm commercializes a new drug is larger when countries do not approve this new drug simultaneously. We also show that a firm’s best response to international reference pricing is to never launch a new drug sequentially as long as the difference in drug approval times between countries is small enough. Furthermore, we show that a firm’s incentives to launch a new drug in one or another country are the same if the drug approval times are identical across countries or if the difference between approval times are small enough. However, we show that these incentives can change if the approval times differences across countries are large enough.