Dissecting the Drug Lag

Much like the availability of biologics, price plays a role in how quickly new drugs become available in a given country. Here we present information on new-drug launches, the mean lag before regulatory approval, and the mean price per unit of established drugs for a range of countries, all based on data from Danzon and Epstein (Danzon, P.M. & Epstein, A.J. 2008. Effects of regulation on drug launch and pricing in interdependent markets. Working Paper 14041; http://www.nber.org/papers/w14041/). The authors examined data on 12 therapeutic drug classes from 15 countries between 1992 and 2003. In particular, they selected countries that produced significant drug innovation during that time period. As the authors of this study state: “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.”

In particular, this graph of data from Danzon and Epstein shows that the number of new-drug launches correlates roughly with the mean price per unit. In general, as the price drops, so do the number of launches. This makes perfect sense from the perspective of a pharmaceutical company that seeks to launch more drugs in a country where the chances of a return on investment are greater. As the mean drug price improves those odds, more drugs get launched. Likewise, the increase in unit price provides more funds for a company to develop more compounds that fuel further launches. For example, the U.S.’s top mean price per unit of $52.70 triggered 72 launches of new drugs, whereas Portugal’s low mean price per unit of $1.83 only yielded 48 launches. As Danzon and Epstein write: “Thus, if price regulation reduces drug prices, it contributes to launch delay in the home country.”

When comparing mean price per unit with the mean lag to approval, the data show an inverse correlation. An increase in the mean price per unit correlates with a reduced lag to approval, and a decrease in the mean price per unit correlates with an increased lag to approval. Here, the U.S.’s top mean price per unit of $52.70 leads to a mean lag to approval of 17.9 months, while Portugal’s low mean price per unit of $1.83 brings a lag of 37 months—more than twice as long. Even the slight drop in mean price per unit of $49.30 in Canada correlates with a lag of 25.6 months. In Japan, known for long lags in receiving drugs from other countries, the mean price per unit of $12.27 is coupled with a 41-month domestic lag, or nearly 3.5 years.

In summary, these data show that countries with the highest grossing markets will enjoy more drug launches and shorter lag times. Without a doubt, the economics of pharmaceuticals clearly impacts a  nation’s regulatory system, and, consequently, the healthcare options available to its citizens.