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This paper compares pharmaceutical spending, availability, use, and prices in twelve countries in 2005. Drug spending per capita was higher in the United States than in other countries. The United States had relatively high use of new drugs and high-strength formulations; other countries used more of older drugs and weaker formulations. Thus, whether US overall volume of use is lower or higher depends on the measure of volume and type of product. Comprehensive price indexes show foreign prices to be 20-40 percent lower than US manufacturer prices, but only 10-30 percent lower than US public prices. Generics are cheaper in the United States than in other countries. [PUBLICATION ABSTRACT]

Differential pricing—manufacturers varying prices for on-patent pharmaceuticals across markets—can, in theory, lead to increased patient access and improved research and development (R&D) incentives compared with charging a uniform price across markets. Theoretical models of price discrimination and Ramsey pricing support differentials based inversely on price elasticities, which are plausibly related to average per capita income. However, these models do not address absolute price levels and dynamic efficiency. Value-based differential pricing theory incorporates insurance coverage and addresses static and dynamic efficiency. Limited empirical evidence indicates a weak positive relationship between prices and gross domestic product (GDP) per capita. External referencing and parallel trade undermine differential pricing. We discuss previously neglected factors that undermine differential pricing in practice. High price growth relative to GDP in the USA leads to widening differentials between the USA and other countries. Concerns over the effects of confidential rebating challenges acceptance of this approach to implementing price differentials. The growth of branded generics in low- and middle-income countries leads to complex markets with product and price differentiation.

We examine the determinants and effects of M&A activity in the pharmaceutical/biotechnology industry using SDC data on 383 firms from 1988 to 2001. For large firms, mergers are a response to expected excess capacity due to patent expirations and gaps in a firm's product pipeline. For small firms, mergers are primarily an exit strategy in response to financial trouble (low Tobin's q, few marketed products, low cash-sales ratios). In estimating effects of mergers, we use a propensity score to control for selection based on observed characteristics. Controlling for merger propensity, large firms that merged experienced a similar change in enterprise value, sales, employees, and R&D, and had slower growth in operating profit, compared with similar firms that did not merge. Thus mergers may be a response to trouble, but they are not a solution.

Most countries regulate pharmaceutical prices, either directly or indirectly, on the assumption that competition is at best weak in this industry. This paper tests the hypothesis that regulation of manufacturer prices and retail pharmacy margins undermines price competition. We use data from seven countries for 1992 to examine price competition between generic competitors (different manufacturers of the same compound) and therapeutic substitutes (similar compounds) under different regulatory regimes. We find that price competition between generic competitors is significant in unregulated or less regulated markets (United States, United Kingdom, Canada, and Germany) but that regulation undermines generic competition in strict regulatory systems (France, Italy, and Japan). Regulation of retail pharmacy further constrains competition in France, Germany, and Italy. Regulation thus undermines the potential for significant savings on off‐patent drugs, which account for a large and growing share of drug expenditures. Evidence of competition between therapeutic substitutes is less conclusive owing to data limitations.

Purpose – This study examines the effect of price regulation and competition on launch timing and pricing of new drugs.Methods – Our data cover launch experience in 15 countries from 1992 to 2003 for drugs in 12 major therapeutic classes. We estimate a two-equation model of launch hazard and launch price of new drugs.Findings – We find that launch timing and prices of new drugs are related to a country's average prices of established products in a class. Thus to the extent that price regulation reduces price levels, such regulation directly contributes to launch delay in the regulating country. Regulation by external referencing, whereby high-price countries reference low-price countries, also has indirect or spillover effects, contributing to launch delay and higher launch prices in low-price referenced countries.Implications – Referencing policies adopted in high-price countries indirectly impose welfare loss on low-price countries. These findings have implications for US proposals to constrain pharmaceutical prices through external referencing and drug importation.

This paper presents new evidence on availability, use, and prices of biopharmaceuticals in five major European Union (EU) markets, Canada, Australia, Japan, and Mexico, relative to the United States. Our data set from IMS Health includes all product sales in 2005. Per capita spending on biopharmaceuticals was at least twice as high in the United States as in the other countries. This difference reflects primarily greater availability and use of new, relatively high-price molecules and formulations. Prices for identical formulations are not higher on average in the United States. The broader price indexes, which do not control formulation, are also not higher in the United States, after adjusting for income.

We examine the determinants of biotech‐pharmaceutical alliance prices to determine whether the market for alliances is characterized by asymmetric information. We find that inexperienced biotech companies receive substantially discounted payments when forming their first alliance. A jointly developed drug is more likely to advance in clinical trials than a drug developed by a single company, so the first‐deal discount is not consistent with the drug's subsequent performance. Biotech companies receive substantially higher valuations from venture capitalists and the public equity market after forming their first alliance, which implies that alliances send a positive signal to prospective investors.

[...]size conveys benefits in marketing to physicians and in contracting for physician-administered drugs, which may also disadvantage or exclude products from smaller firms and may harm consumers. [...]size-related advantages in retained earnings provide a relatively low-cost source of financing for marketing and acquisitions that may enable the largest firms to maintain their dominance. in all three contexts, any real efficiency savings are unlikely to be passed on to consumers through lower prices because insurance and imperfect information undermine consumer price sensitivity and competition on price.15 In this context, mergers between large firms are likely to increase their leverage and market power and harm consumers. [...]of these size-related advantages and their potential for competitive harm, we suggest a presumption that a merger between two large pharma- ceutical firms substantially lessens competition, thereby shifting to the firms the burden of showing that expected efficiencies outweigh potential competitive harms. Because competitive advantages are likely to increase as the firms' size grows, mergers involving mid-size pharmaceutical firms (e.g., roughly the second decile of firms ranked by national or global pharmaceutical sales) are less likely to harm competition, with the extent of harm depending on the size of the merged entity and whether the merger involves dominant products that could be leveraged for cross-market exclusionary strategies. In such contexts, failure to reach a bargaining agreement with the merged hospital system may increase the loss incurred by the insurer, relative to bargaining with each hospital separately, which enables the merged hospital system to extract higher prices in a simple Nash bargaining context.19 Dafny et al.'s empirical analysis confirms that hospitals involved in mergers in unrelated markets raised prices more than similar hospitals not involved in mergers.20 Similarly, mergers of two hospitals in distinct therapeutic niches, for example, pediatrics and geriatrics, may increase the hospitals' market power in bargaining with insurers because loss of the combined system would reduce the insurers' appeal to employers and/or families who anticipate needing either service. our analysis breaks new ground in considering cross-market concerns in the context of branded pharmaceuticals, where large firms' product portfolios span multiple therapeutic markets that increase their bargaining leverage in negotiations with pharmacy benefit managers (PBMs).

Differential pricing could make global medicines affordable in developing countries. But drugs for diseases that have no market in the developed world will require additional subsidies, says Patricia M. Danzon.

Finding better mechanisms to enable differential pricing that reflects different degrees of willingness to pay across countries with different income levels is an important challenge for drug manufacturers and policy makers. Drug prices must be high enough to meet manufacturers' needs-covering costs and ensuring adequate investment in research and development, as well as producing a profit-but low enough to allow consumers access to medicines that they need. Examining drug pricing, we found that in rich countries, insurance coverage can make consumers insensitive to price, which means that manufacturers' prices are largely unrestrained unless payers intervene. In middle- and low-income countries, where most consumers pay for drugs out of pocket, we found that the poorest countries face the highest prices, relative to their mean per capita income. We recommend that countries and payers set their own cost-effectiveness thresholds to reflect how much they are willing to pay for \"health gain\"-in other words, for a measured improvement in the health of a person or a population. Adopting this approach broadly should lead to appropriate price differences across and within countries, benefiting consumers and manufacturers alike. [PUBLICATION ABSTRACT]