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Do international launch strategies of pharmaceutical corporations respond to changes in the regulatory environment?

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  • Varol, Nebibe
  • Costa-i-Font, Joan
  • McGuire, Alistair

Abstract

This paper investigates how regulation impinges on the launch strategies of international pharmaceutical corporations for new molecules and generics across the main OECD markets during 1960-2008. Comprehensive IMS data is used to analyze the international diffusion of 845 molecules from 14 different anatomic therapeutic categories using non-parametric survival analysis. The paper focuses on two main regulatory changes that reshaped the barriers to entry substantially: the US Hatch-Waxman Act in 1984 and the establishment of the European Medicines Agency (EMA) in 1995. We find that legal transaction costs have a significant impact on timing of launch. Stringent market authorization requirements for new pharmaceutical products in the US after 1962 resulted in a significant US drug lag in the introduction of pharmaceutical innovation vis-à-vis Europe during 1960-1984. However, financial incentives of the 1984 Hatch-Waxman Act proved effective in closing this lag. A more streamlined EMA regulatory approval process has reduced barriers to entry in Europe enabling quicker diffusion of pharmaceutical products, yet a marked pattern of delay in adoption of innovation is still evident due to local differences in pricing regulations. New molecule launch strategically takes place first in higher-priced EU markets as a result of threat of arbitrage and price dependency across the member states. Finally, the impact of price controls on the launch timing of pharmaceutical innovation translates to the adoption of imitative pharmaceutical products-hampering access not only to new technologies but also to cost-saving substitute products.

Suggested Citation

  • Varol, Nebibe & Costa-i-Font, Joan & McGuire, Alistair, 2010. "Do international launch strategies of pharmaceutical corporations respond to changes in the regulatory environment?," LSE Research Online Documents on Economics 29972, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:29972
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    File URL: http://eprints.lse.ac.uk/29972/
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    References listed on IDEAS

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    1. 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.
    2. Frank Lichtenberg, 2005. "The Impact of New Drug Launches on Longevity: Evidence from Longitudinal, Disease-Level Data from 52 Countries, 1982–2001," International Journal of Health Economics and Management, Springer, vol. 5(1), pages 47-73, January.
    3. Kyle Margaret, 2011. "Strategic Responses to Parallel Trade," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(2), pages 1-34, January.
    4. 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.
    5. Lichtenberg, Frank R, 1996. "Do (More and Better) Drugs Keep People Out of Hospitals?," American Economic Review, American Economic Association, vol. 86(2), pages 384-388, May.
    6. John A. Vernon, 2005. "Examining the link between price regulation and pharmaceutical R&D investment," Health Economics, John Wiley & Sons, Ltd., vol. 14(1), pages 1-16.
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    Cited by:

    1. Salas-Vega, Sebastian & Bertling, Annika & Mossialos, Elias, 2016. "A comparative study of drug listing recommendations and the decision-making process in Australia, the Netherlands, Sweden, and the UK," Health Policy, Elsevier, vol. 120(10), pages 1104-1114.

    More about this item

    Keywords

    international drug launch; drug lag; pharmaceutical regulation;

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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