Competitive pricing within pharmaceutical classes: evidence on "follow-on" drugs in Germany 1993–2008

Objectives Competition from "follow-on" drugs has been a highly controversial issue. Manufacturers launching new molecules in existing drug classes have often been criticized for inflating health systems' expenses, but it has been argued that such drugs increase therapeutic options. E...

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Bibliographic Details
Published in:	The European journal of health economics 2015-01, Vol.16 (1), p.73-82
Main Authors:	Mueller, Michael T., Frenzel, Alexander
Format:	Article
Language:	eng
Subjects:	Chronic illnesses Competition Cost Control Costs and Cost Analysis - economics Drug Costs - statistics & numerical data Drug Industry - economics Drug Industry - legislation & jurisprudence Drug Industry - organization & administration Drugs Economic Competition - economics Economic Policy Economic theory Economics, Pharmaceutical Health Care Management Health Economics Humans Hypotheses Innovations Market entry Medicine Medicine & Public Health Models, Econometric Original Paper Pharmaceuticals Pharmacoeconomics and Health Outcomes Prices Pricing policies Product differentiation Public Finance Public Health R&D Regression Analysis Research & development Statistical analysis
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Summary:	Objectives Competition from "follow-on" drugs has been a highly controversial issue. Manufacturers launching new molecules in existing drug classes have often been criticized for inflating health systems' expenses, but it has been argued that such drugs increase therapeutic options. Economic theory suggests that follow-on drugs induce price competition. We contribute to this discussion by addressing the topic of pricing at market entry and price development in the German market. Methods We measure determinants of price strategies of follow-on drugs using regression analyses, considering all new molecules launched in the German market from 1993 to 2008. Prices of products are standardized on defined daily dosages controlling for sales volumes based on data from the IMS Health DPM database and for the therapeutic quality of a new product using ratings by Fricke/Klaus as a proxy for innovation. Results We identify prices correlating with therapeutic value at market entry. While the first two molecules engage in quality competition, price discounts below the market price can be observed from the third entrant on. Price discounts are even more distinct in development races with several drugs entering the market within 2 years and in classes with a low degree of therapeutic differentiation. Prices remain relatively constant over time. Conclusion This study contributes to assessments of competition in pharmaceutical markets focusing on price strategies of new market entrants. After an initial phase of market building, further follow-on products induce price competition. Largely unchanged prices after 4 years may be interpreted as quality competition and can be attributed to prices in Germany being anchor points for international price referencing.
ISSN:	1618-7598 1618-7601