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Diffusion of new pharmaceutical drugs in a global environment

Final Activity Report Summary - DiffPharma (Diffusion of New Pharmaceutical Drugs in a Global Environment)

The goal of this research project, as approved by the European Commission, was to investigate the adoption of new pharmaceutical drugs across the globe. The project firstly consisted of examining the cross-national similarities and differences in the penetration levels of multiple new molecules belonging to various anatomical therapeutic categories (ATC). The analysis also intended to compare countries along the complete product life cycle, in order to assess whether differences that might arise a few months after the launch of a new molecule became larger or smaller when the drug matured. The second part of the project consisted of investigating the multiple factors that influenced new drugs’ diffusion, including the role of regulatory regimes, national culture, economic conditions and market structure.

Existing marketing literature had overlooked the role of regulatory regimes in explaining international sales’ growth of new products. This project addressed this gap in the context of new pharmaceuticals, analysing 15 new molecules in 34 countries, and shed light on the effect that regulatory regimes had on new drug sales across the globe. Based on a time-varying coefficient model, we found that differences in regulation substantially contributed to cross-country variation in sales. One of the regulatory constraints that were investigated, i.e. the manufacturer price controls, had a positive effect on drug sales. The other forms of regulation, such as restrictions of physician prescription budgets and prohibition of direct-to-consumer advertising (DTCA), tended to hurt sales. The effect of manufacturer price controls was similar for newly launched and mature drugs. In contrast, regulations on physician prescription budget and DTCA had a differential effect for newly launched and mature drugs. While the former hurt mature drugs more, the latter had a larger effect on newly launched drugs. In addition to these regulatory effects, we found that national culture, economic wealth, introduction timing, lagged sales and competition also affected drug sales.

Our findings could be used as input by managers for international launch and sales’ decisions. They might also be used by public policy administrators to compare drug sales in their country to other countries and assess the role of regulatory regimes therein. An important contribution of this study for both managers and public policy makers was that regulations, in general, mattered. Pharmaceutical manufacturers could not ignore regulatory regimes as they affected the attractiveness, in terms of volume, of a country. For instance, drug volumes were ceteris paribus higher in countries with manufacturer price regulation, while they were lower in countries with direct-to-consumer or prescription budget regulation. These insights were potentially of value to managers when they developed their international launch plans and their expectations towards sales’ growth in the respective markets they entered. In addition, this study confirmed that the cultural and economic characteristics of countries did also affect their attractiveness for pharmaceutical firms. Managers could therefore locate their markets of interest in a map that accounted for regulatory, cultural and economic dimensions that would guide strategy planning.

In addition, our study was relevant to public policy makers. Firstly, public policy makers were interested in international variation in new drug sales, as they might wish to compare drug consumption, either for health care system quality or cost reasons, in their own country to others. Secondly, they wished to know the relationship between the regulatory restrictions they enforced and drug consumption. For instance, some regulatory restrictions had a larger effect on newly launched drugs than on maturing drugs, and vice versa. We found sales of maturing drugs to suffer more from prescription budget regulation than those of newly launched drugs. In contrast, the prohibition of DTCA depressed sales of newly launched drugs more than it depressed sales of maturing drugs. Insights such as these provided the regulator with guidelines for the enforcement, monitoring and adaptation of the regulatory environment.