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Entry time effects and follow-on drug competition

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Abstract

Pharmaceutical firms have been criticized for concentrating efforts of R&D on the so-called me-too or follow-on drugs. There have been many comments for and against the dissemination of these incremental innovations but few papers have broached the subject from an econometric point of view, possibly because identification of me-too or follow-on drugs is not so obvious. This paper focuses on the impact of entry order on follow-on drug competition in the French market between the years 2001 and 2007. More precisely, this study examines the effects on market share of first entrants in the follow-on drug market and how this possible competitive advantage changes over time. First results are coherent with theoretical microeconomic issues concerning the importance of being first. We find evidence that first movers in the follow-on drug market have the ability to capture and maintain greater market share for a long period of time. The hierarchical market position of follow-on drugs does not seem to be affected by generic drug emergence. From a dynamic perspective, our analysis shows that market share is positively correlated with the ability of follow-on drugs to set prices higher than the average follow-on drug prices in a specific therapeutic class, which means that market power remains considerably important for first movers. Moreover, we found that the optimum level of innovation to maximize market share is the highest one.

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Acknowledgments

The authors thank Izabela Jelovac, Marc Perronin, and Aurélie Pierre for their precious comments. The authors are very thankful to Nicolas Célant for his collaboration in the construction of the dataset.

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Corresponding author

Correspondence to Luiz Flavio Andrade.

Appendix

Appendix

 

Random effects

Fixed effects

Entry order

−1.106***

 

(0.152)

 

Entry order × year dummy 2002

0.0688

0.326

(0.301)

(0.303)

Entry order × year dummy 2003

0.567

0.828**

(0.300)

(0.302)

Entry order × year dummy 2004

0.673*

0.909**

(0.298)

(0.301)

Entry order × year dummy 2005

1.104***

1.318***

(0.299)

(0.302)

Entry order × year dummy 2006

1.331***

1.531***

(0.299)

(0.304)

Entry order × year dummy 2007

1.316***

1.531***

(0.301)

(0.306)

Relative prices in relation to the first-in-class in log

2.632***

2.819***

(0.345)

(0.388)

ASMR

−2.858

−8.945**

(2.433)

(3.049)

ASMR missing

−4.199

−14.96**

(3.895)

(4.963)

ASMR square

0.431

1.288**

(0.344)

(0.428)

Medium-sized firms

1.540**

1.705**

(0.475)

(0.559)

Large-sized firms

1.029

1.038

(0.548)

(0.655)

Medium-age drugs

0.499*

0.119

(0.250)

(0.262)

Old-age drugs

0.459

−0.249

(0.462)

(0.503)

Chemical entity with generic versions

−2.925***

−2.794***

(0.374)

(0.399)

ATC class with low therapeutic relevance

3.486***

2.668***

(0.609)

(0.680)

ATC class with medium therapeutic relevance

−0.0134

0.102

(0.224)

(0.229)

Number of generic drugs in the class

−0.0161**

−0.0148**

(0.00493)

(0.00527)

Year dummy 2002

−0.237

−0.719

(0.607)

(0.610)

Year dummy 2003

−1.558**

−2.033***

(0.605)

(0.607)

Year dummy 2004

−2.113***

−2.517***

(0.604)

(0.607)

Year dummy 2005

−3.110***

−3.480***

(0.609)

(0.613)

Year dummy 2006

−3.849***

−4.156***

(0.609)

(0.615)

Year dummy 2007

−3.964***

−4.271***

(0.614)

(0.622)

_cons

15.04***

22.46***

(3.912)

(4.922)

r2

 

0.0630

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Andrade, L.F., Sermet, C. & Pichetti, S. Entry time effects and follow-on drug competition. Eur J Health Econ 17, 45–60 (2016). https://doi.org/10.1007/s10198-014-0654-9

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