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Review of Industrial Organization

Erschienen in:

07.06.2018

Are Important Innovations Rewarded? Evidence from Pharmaceutical Markets

verfasst von: Margaret K. Kyle

Erschienen in: Review of Industrial Organization | Ausgabe 1/2018

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Abstract

This paper focuses on the relationship between therapeutic value and different measures of market rewards: the number of patents, price, market share, and revenues. Using an assessment of therapeutic value that is provided by the French Haute Authorité de Santé (HAS), I find a weak relationship between most measures of rewards and this assessment of therapeutic value, which suggests that the returns to developing a “me-too” product are not very different from developing treatments with greater therapeutic effects. One interpretation is that the HAS score is a poor assessment of therapeutic value, in which case the use of similar health technology assessments by governments and other payers should be re-examined. Alternatively, if the HAS score is informative, the results suggest that countries are overspending on less innovative products, and that a re-balancing of innovation incentives may be worth considering if therapeutic value is highly related to social welfare.

Vorheriger Artikel The Impact of the Entry of Biosimilars: Evidence from Europe

Nächster Artikel Preventives Versus Treatments Redux: Tighter Bounds on Distortions in Innovation Incentives with an Application to the Global Demand for HIV Pharmaceuticals

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OECD (2016), Pharmaceutical spending. Accessed on 29 December 2016.

For example, patients who take a statin for high cholesterol may not directly observe an improvement in their health status: tthey may not “feel” better. While their cholesterol levels can be monitored, monitoring can be costly and the levels themselves may depend on factors that are unrelated to the statin therapy, such as diet.

The EMA’s primary role is the evaluation of innovative products via the centralized procedure, which grants a marketing authorization that is valid in all member states as well as Iceland, Norway, and Lichtenstein. As of 2004, the centralized procedure is required for some categories of products, including those for HIV, cancer, diabetes, and autoimmune disorders as well as biologics. For others, applicants may seek approval via the decentralized or mutual recognition procedures that use national authorities. A key difference is that the former guarantees that an identical product is authorized throughout the EU, while variations in strength, dosing, package size, and brand names may result from the others.

Orphan drugs are those that treat rare diseases, defined as those affecting fewer than 200,000 people per year in the US.

The market for drugs that are not reimbursed is relatively small in developed countries, although exceptions exist, such as cosmetic treatments and contraceptives.

A formulary is a list of pharmaceutical products covered by an insurer. Often, a formulary is comprised of several “tiers” with different co-payments or cost-sharing rules.

https://www.bloomberg.com/graphics/2016-drug-prices/.

A summary of drug quality measures and their use in economics is provided in Feng and Maini (2016).

Prior to 1992, the FDA classified new drug applications based on an internal assessment of therapeutic potential and novelty. Lu and Comanor (1998) use this classification in a study of strategic pricing of new drugs.

This measure is relatively new to the economics literature, but has been exploited in Régnier and Ridley (2015); Kyle and Williams (2017).

The Union nationale des caisses d’assurance maladie (Uncam) fixes the reimbursement rate, and the Comité économique des produits de santé (CEPS) fixes the price.

Specifically, I used IMS Lifecycle New Product Focus and regulatory websites in the US and Europe. Regulatory information is less easily accessed in the developing countries in my sample.

Quantities are recorded in 1000s, and rounded to 0 when sales are low. It is therefore not possible to calculate a per-unit price.

Unfortunately, I don’t know where the initial sale occurred, so measurement error enters here as well.

A Chow test of the ASMR coefficients between the full sample and NCE subsample rejects the hypothesis of equality for all specifications but relative price.

A Chow test of the ASMR coefficients rejects the hypothesis of equality between the country subsamples.

I explored using the data on global disease burden from the Institute for Health Metrics and Evaluation, for example, which provides annual estimates for more than 200 causes. However, these vary in specificity, with more detailed information available for some disease areas than others.

Abrams, D., & Sampat, B. (2017). Pharmaceutical patent citations and real value. University of Pennsylvania working paper.

Acemoglu, D., & Linn, J. (2004). Market size and innovation: Theory and evidence from the pharmaceutical industry. Quarterly Journal of Economics, 119(3), 1049.CrossRef

Arcidiacono, P., Ellickson, P. B., Landry, P., & Ridley, D. B. (2013). Pharmaceutical followers. International Journal of Industrial Organization, 31(5), 538. https://doi.org/10.1016/j.ijindorg.2013.10.005.CrossRef

Bokhari, F., & Fournier, G. (2013). Entry in the ADHD drugs market: Welfare effects of generics and me-toos. Journal of Industrial Economics, LXI(2), 339.CrossRef

Budish, E., Roin, B. N., & Williams, H. (2015). Do fixed patent terms distort innovation? Evidence from cancer clinical trials. American Economic Review, 105(7), 2044.CrossRef

Chambers, J., Thorat, T., Chenoweth, M., & Neumann, P. (2015). Fast-tracking innovation: A scorecard for the FDA’s expedited review process. Value in Health, 18(7), A517.CrossRef

de Mouzon, O., Dubois, P., Morton, F. S., & Seabright, P. (2015). Market size and pharmaceutical innovation. RAND Journal of Economics, 46(4), 844.CrossRef

Dranove, D., & Meltzer, D. (1994). Do important drugs reach the market sooner? RAND Journal of Economics, 25(3), 402.CrossRef

Feng, J., & Maini, L. (2016). Where is the good stuf? Drug quality measures and economic research. Harvard University working paper.

Forbes. (2015). The most profitable industries in 2016. December 21.

Hult, K. J. (2016). Incremental innovation and pharmaceutical productivity. University of Chicago working paper.

Kremer, M., & Glennerster, R. (2004). Strong medicine: Creating incentives for pharmaceutical research on neglected diseases. Princeton: Princeton University Press.

Kyle, M. (2007). Pharmaceutical price controls and entry strategies. Review of Economics and Statistics, 89(1), 88.CrossRef

Kyle, M., & McGahan, A. (2012). Investments in pharmaceuticals before and after TRIPS. Review of Economics and Statistics, 94(4), 1157.CrossRef

Kyle, M., & Williams, H. (2017). Is American health care uniquely inefficient? Evidence from prescription drugs. American Economic Review Papers and Proceedings, 107(5), 486.CrossRef

Lu, Z. J., & Comanor, W. S. (1998). Strategic pricing of new pharmaceuticals. The Review of Economics and Statistics, 80(1), 108.CrossRef

Régnier, S. A., & Ridley, D. B. (2015). Forecasting market share in the US pharmaceutical market. Nature Reviews Drug Discovery, 14(9), 594.CrossRef

World Health Organization. (2015). 2015 Global survey on health technology assessment by national authorities.

Yin, N. (2013). Pharmaceuticals, incremental innovation and market exclusivity. University of Toulouse working paper.

Titel: Are Important Innovations Rewarded? Evidence from Pharmaceutical Markets
verfasst von: Margaret K. Kyle
Publikationsdatum: 07.06.2018
Verlag: Springer US
Erschienen in: Review of Industrial Organization / Ausgabe 1/2018
Print ISSN: 0889-938X
Elektronische ISSN: 1573-7160
DOI: https://doi.org/10.1007/s11151-018-9639-7

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