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Effects of Regulation on Drug Launch and Pricing in Interdependent Markets

  • Patricia M. Danzon
  • Andrew J. Epstein

This study examines the effect of price regulation and competition on launch timing and pricing of new drugs. Our data cover launch experience in 15 countries for drugs in 12 therapeutic classes that experienced significant innovation over the decade 1992-2003. We use prices of established products as a measure of the direct effect of a country's own regulatory system, and find that launch timing and prices of innovative drugs are influenced by prices of established products. Thus, if price regulation reduces drug prices, it contributes to launch delay in the home country. New drug launch hazards and launch prices in low-price countries are also affected by referencing by other, high-price countries, especially within the EU, as expected if manufacturers delay launch in low-price markets to avoid undermining higher prices in other countries. Thus, referencing policies adopted in high-price countries can impose welfare loss on low-price countries. Prices of new drugs are influenced mainly by prices of other drugs within the same subclass; however, dynamic competition from new subclasses undermines new drug launch in older subclasses. Association with a local firm accelerates launch only in certain regulated markets. These findings have implications for US proposals to constrain pharmaceutical prices in the US through external referencing and drug importation.

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File URL: http://www.nber.org/papers/w14041.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14041.

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Date of creation: May 2008
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Handle: RePEc:nbr:nberwo:14041
Note: HC IO LE
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  1. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  2. Jean O. Lanjouw, 2005. "Patents, Price Controls, and Access to New Drugs: How Policy Affects Global Market Entry," NBER Working Papers 11321, National Bureau of Economic Research, Inc.
  3. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G., 2003. "The price of innovation: new estimates of drug development costs," Journal of Health Economics, Elsevier, vol. 22(2), pages 151-185, March.
  4. 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.
  5. Schmidt, Peter & Witte, Ann Dryden, 1989. "Predicting criminal recidivism using 'split population' survival time models," Journal of Econometrics, Elsevier, vol. 40(1), pages 141-159, January.
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