TY - JOUR AU - Danzon,Patricia M. AU - Epstein,Andrew J. TI - Effects of Regulation on Drug Launch and Pricing in Interdependent Markets JF - National Bureau of Economic Research Working Paper Series VL - No. 14041 PY - 2008 Y2 - May 2008 UR - http://www.nber.org/papers/w14041 L1 - http://www.nber.org/papers/w14041.pdf N1 - Author contact info: Patricia M. Danzon Health Care Systems Department The Wharton School University of Pennsylvania 204 Colonial Penn Center 3641 Locust Walk Philadelphia, PA 19104 Tel: 215/898-0694 Fax: 215/573-2157 E-Mail: danzon@wharton.upenn.edu Andrew Epstein School of Public Health Yale University 60 College St, Room 301 New Haven, CT 06520 E-Mail: andrew.epstein@yale.edu AB - 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. ER -