Biomedical Engineering Reference
In-Depth Information
When launching a new drug in an international context, pharmaceutical compa-
nies also need to decide on the launch prices in different countries. Like launch
time, launch price is an important determinant of the evolution and distribution of
cash flows across time and countries. As different countries have different charac-
teristics (regulation, population size, GDP per capita, number of competitor drugs,
etc.), launch prices are expected to differ across countries. Some studies have looked
at drug prices across countries, without explicitly focusing on launch price.
Chintagunta and Desiraju ( 2005 ) studied drug price levels across five geographic
markets and showed that the USA is less price sensitive than European markets.
Danzon and Furukawa ( 2003 ) examined drug prices in nine countries and showed
that Japan and the USA have the highest drug prices. Other countries' drug prices
are 6-33 % lower than drug prices in the USA. Danzon and Chao ( 2000a ) examined
bilateral drug price indexes between seven countries and found that older molecules
had lower prices in countries with strict price regulations than they did in less strictly
regulated countries. Price differences on a worldwide level have been the cause for
parallel trade, which occurs when a third party purchases drugs in lower-priced
countries and then resells them in higher-priced countries (Onkvisit and Shaw
1989 ). Although prices are quite heterogeneous across countries, many countries
worldwide (mainly in the European Union) have an external reference pricing regu-
lation. This regulation requires that, before launching a drug in a certain country, the
pharmaceutical company supplies that country's health regulators with information
on the drug's prices in selected foreign countries. Regulators then cap prices on the
basis of that information (Dukes et al. 2003 ; Verniers et al. 2011 ).
Several studies have examined drivers of launch timing, and other studies have
looked at differences in international launch prices. Verniers et al. ( 2011 ) investi-
gated 58 molecules in 50 countries worldwide to empirically evaluate the regulatory
drivers of both launch timing and launch price. They examined the effect of ex-
manufacturer price control, profit control, internal reference pricing regulation,
external reference pricing regulation, pharmacoeconomic evidence, and patent pro-
tection strength on launch price. Although they did not observe a direct effect of
regulation on launch price, they did find an effect of regulation on launch timing.
Apparently, regulatory restrictions are more useful to regulators in constraining the
price of mature drugs rather than the price of newly launched drugs (Stremersch and
Lemmens 2009 ; Verniers et al. 2011 ).
Table 7.3 presents the mean lead or lag in launch window (the launch window is
defined as the difference in months between the first launch worldwide and the sub-
sequent launch in a specific country) and the percent deviation from the mean price
at launch for countries across seven world regions. Column 3 in Table 7.3 shows
each country's deviation from the mean launch price across drugs. This is calculated
according to the following steps: (1) construct the mean launch price for each drug
across the countries; (2) calculate the percentage of deviation of the country-speciic
price from the mean price over all countries; (3) average these percentages of devia-
tion for each specific country over all drugs launched in that country. A negative
deviation for a given country means that a drug is typically launched at a relatively
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