The Inter-Country Diffusion of Pharmaceutical Products

A major debate has raged over the existence and causes of a phenomenon known as "drug lag". Protagonists in the debate have argued that the· U.S.A. is typically late to receive new pharmaceutical products because of the very lengthy delays imposed by F.D.A. regulations before new products can be launched on the U.S. market. Supporters of the. F.D.A. have denied the U.S.A. suffers from a drug lag while proposing alternative explanations for its existence. In this thesis attempt is made to resolve the debate by investigating the pattern of inter-country diffusion of pharmaceutical products. Hypotheses are postulated and tested in an attempt to provide answers to four fundamental questions posed about inter-country diffusion. These questions are: ·1. What factors determine the speed of diffusion of pharmaceutical products? 2. What factors determine the extent of diffusion of pharmaceutical products? 3. What factors determine when pharmaceutical products are launched in each country? 4. What factors determine how many pharmaceutical products are launched in each country? A survey of the relevant literature on diffusion of innovations reveals that profit-related variables are consistently useful explanators of diffusion patterns. The tenor of the hypotheses postulated for testing in this thesis is that firms in this industry strive to launch products in a manner designed to maximize their contributions to profits. The diffusion patterns between 18 countries, of 190 products first launched on to the world's markets between 1956 and 1976 are examined to test the hypotheses and thus provide answers to the four questions listed above. Statistical analysis is undertaken to test the hypotheses. There appears to be relatively little evidence to support many of the hypotheses tested about speed and extent of diffusion. However there is considerable evidence that the speed of diffusion of products, after their first launch, has increased steadily throughout the period studied. Deeper investigation suggests the typical time between discovery of products useful properties, and their typical times of availability on the worlds markets may have remained almost constant throughout the twenty-one year period studied. Pharmaceutical companies may have acted to compensate for increasingly lengthy delays before products are first launched, by more rapid subsequent launch of products. The number of products which are launched in a country and the magnitude of the delay before they are launched in each country appear to be relatively predictable. Both of these parameters appear to be strongly influenced by countries levels of development. Countries with high health expenditures per capita, appear to receive more produc~s, more rapidly, than do lower expenditure countries. Interest ultimately focuses on the question of drug lags and the affects of regulations. Drug lags are shown to exist for the U.S.A., Japan and some other countries. When the period studied is divided into two sub-periods relatively strong correlations are shown to exist between ratings of regulatory tightness in markets; and changes in the numbers of products diffusing to markets and; changes ~n mean times before products are launched in markets. Regulations do appear to exert considerable influence on the patterns of inter-country diffusion of pharmaceuticals in the latter part of the period studied.