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The impact of price regulation on the launch delay of new drugs—evidence from twenty‐five major markets in the 1990s

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  • Patricia M. Danzon
  • Y. Richard Wang
  • Liang Wang

Abstract

We analyze the effect of price regulation on delays in launch of new drugs. Because a low price in one market may ‘spill‐over’ to other markets, through parallel trade and external referencing, manufacturers may rationally prefer longer delay or non‐launch to accepting a relatively low price. We analyze the launch in 25 major markets, including 14 EU countries, of 85 new chemical entities (NCEs) launched between 1994 and 1998. Each NCE's expected price and market size in a country are estimated using lagged average price and market size of other drugs in the same (or related) therapeutic class. We estimate a Cox proportional hazard model of launch in each country, relative to first global launch. Only 55% of the potential launches occur. The US leads with 73 launches, followed by Germany (66) and the UK (64). Only 13 NCEs are launched in Japan, 26 in Portugal and 28 in New Zealand. The results indicate that countries with lower expected prices or smaller expected market size have fewer launches and longer launch delays, controlling for per capita income and other country and firm characteristics. Controlling for expected price and volume, country effects for the likely parallel export countries are significantly negative. Copyright © 2004 John Wiley & Sons, Ltd.

Suggested Citation

  • Patricia M. Danzon & Y. Richard Wang & Liang Wang, 2005. "The impact of price regulation on the launch delay of new drugs—evidence from twenty‐five major markets in the 1990s," Health Economics, John Wiley & Sons, Ltd., vol. 14(3), pages 269-292, March.
    • Handle: RePEc:wly:hlthec:v:14:y:2005:i:3:p:269-292
    DOI: 10.1002/hec.931
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    1. Danzon, Patricia M & Chao, Li-Wei, 2000. "Does Regulation Drive out Competition in Pharmaceutical Markets?," Journal of Law and Economics, University of Chicago Press, vol. 43(2), pages 311-357, October.
    2. David Dranove & David Meltzer, 1994. "Do Important Drugs Reach the Market Sooner?," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 402-423, Autumn.
    3. Patricia Danzon, 1997. "Trade and Price Differentials for Pharmaceuticals: Policy Options," Monograph 000430, Office of Health Economics.
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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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