Order of Entry Effect and Effects of Drug Relabeling in the Pharmaceutical Industry Público
Yan, Xin (Summer 2018)
Abstract
The first chapter studies order-of-entry effects (OEE) in the pharmaceutical industry. Overall, I find evidence of first-mover advantage (FMA). On average, first movers obtain approximately a 23 percentage point higher market share than followers during their first five years in the market. Interestingly, followers who enter the market within two years of the first mover mitigate the FMA. These “fast followers” demonstrate that the speed of entry matters. Followers who enter the market more than two years after the first mover suffer a late-mover disadvantage. This disadvantage increases with the time between the initial entrant and late-mover.
The second chapter provides causal evidence relating to the impacts of FDA drug relabeling on consumer demand. We find that, on average, demand declines by 16.9 percent within two years of a relabeling event. Given the disaggregate nature of our data we capture all plausible substitution patterns by treating physicians. Critically, after accounting for this substitution demand declines by 4.7 percent, which represents consumers that prematurely leave the market. Results are robust to variation across types of relabeling, market sizes, levels of competition and degrees of cross-molecular substitution. If the consumers that leave the market should be treated, then our findings have implications for welfare and policy.
Table of Contents
Preface …………………………………………………………………………………….1
I If You Ain’t First, Are You Last?: Mitigating the First Mover Advantage………………….3
1 Introduction.......................................................................................................……….4
2 U.S. Pharmaceutical Regulatory Environment............................................................ 6
3 Order and Timing of Entry Effect............................................................................... 7
4 Data............................................................................................................................. 9
5 Order of Entry Effect on Market Share..................................................................... 10
5.1 Order of Entry Effect on Market Share with Differentiation among Followers.12
5.2 Entry Time Effect on Market Share................................................................... 14
5.3 Average Entry Timing Effect on Market Share................................................. 15
5.4 Order of Entry Effect on Net Sales……............................................................ 15
5.5 Drug Diffusion in the New Market.................................................................... 17
5.6 Endogeneity Issue.............................................................................................. 19
6 Main Results for Order of Entry Effect..................................................................... 20
6.1 Baseline Results - Effects from OEE.................................................................... 20
6.2 The Effect of a Follower’s Entry Speed............................................................ 21
6.3 The Impact of Timing of Entry on Market Share.............................................. 22
6.4 Order of Entry Effect on Net Sales.................................................................... 23
6.5 New Drugs Diffusion......................................................................................... 23
6.6 Order of Entry on Approximated Profit............................................................. 25
6.6.1 Profit Approximation.............................................................................. 25
6.6.2 The Impact of Entry Speed on Profit...................................................... 25
6.6.3 The Summary of the Impact of Entry Speed on Profit........................... 26
7 Implications and Discussions.................................................................................... 26
8 Conclusion................................................................................................................. 28
Appendix............................................................................................................................ 47
A1 Robustness and Sensitivity Check
A1.1 Order of Entry Effect from Alternative Definitions of Entry Speed............... 47
A1.2 Order of Entry Effect with Alternative Timeframe…………......................... 48
A1.3 Order of Entry Effect on Market Share with Alternative Definition of Fast Follower……………………………………………………………………………49
A1.4 Summary of Findings on the Order of Entry Effect........................................ 50
A1.5 Sensitivity Analysis of Timing of Entry Effect………................................... 51
A1.6 Order of Entry Effect on the Promotion Elasticity of Demand....................... 51
A1.7 Endogenous Orders of Entry........................................................................... 53
II Estimating Effects of Adverse Regulatory Events: Evidence from Drug Relabeling …….68
1 Introduction..................................................................................................................69
2 FDA Drug Relabeling . . …………………………………………………………....71
3 Adverse Regulatory Events ………………………………………………………...72
4 Empirical Strategy and Data..................................................................................... 74
4.1 Empirical Strategy.............................................................................................. 74
4.2 Data.................................................................................................................... 75
4.2.1 Dependent Variable..................................................................................76
4.2.2 Independent Variable................................................................................77
4.2.3 Endogeneity of Price.................................................................................78
5 Empirical Finding.......................................................................................................78
5.1 Impact of Drug Relabeling on Demand...............................................................78
5.2 Heterogeneous Impacts Across Relabeling Intensity........................................ 81
5.3 Heterogeneous Impacts Across Levels of Relabeling Severity..........................82
6 Robustness................................................................................................................. 84
6.1 Variation Across Market Concentration and Market Size.................................. 84
6.2 Cross-Molecular Substitution ............................................................................84
7 Discussion and Conclusions...................................................................................... 86
List of Figures
1 Market Share of Brand Drugs........................................................................... 35
2 Entry Timing Distribution................................................................................. 35
3 Market Share of Brand Drugs in Specific Markets........................................... 36
4 Net Sales of Brand Drugs.................................................................................. 36
5 Average Market Sales....................................................................................... 37
A.1 Entry Timing Distribution with an Alternative Definition..................................... 54
A.2 Average Promotional Spending since Market Opening.......................................... 54
1 Focal Drug Demand in U.S. and U.K. Surrounding Relabel Events...................... 95
List of Tables
1 Literature of OEE in the Pharmaceutical Industry……………………………....37
2 Summary Statistics..............................................................................................38
3 Speed of Entry.....................................................................................................39
4 Market Sales Over Time .....................................................................................39
5 The Order of Entry Effect on Market Share…………………………………….40
6 The Order of Entry Effect on Market Share by Timing of Entry……………….41
7 The Order of Entry Effect on Market Share by Speed to Market………………42
8 The Speed of Entry on Market Share …………………………………………...43
9 The Order of Entry Effect on Net Sales ………………...…………...………….44
10 The Effect of Vintage on Market Size…………………………......……………45
11 Summary of Profit Approximation………………………………………….......46
A.1 Speed of Entry in Four Groups............................................................................55
A.2 The Order of Entry Effect on Market Share with Alternative Definitions of Followers…………………………………………………………………………………56
A.3 The Order of Entry Effect on Market Share with Alternative Timeframe since Drug Introduction .......................................................................................................................57
A.4 The Order of Entry Effect on Net Sales with Alternative Timeframe since Drug Introduction........................................................................................................................58
A.5 Summary Statistics for Robustness.....................................................................59
A.6 The Order of Entry Effect on Market Share with an Alternative Definition of Fast Follower1...........................................................................................................................60
A.7 The Order of Entry Effect on Market Share with an Alternative Definition of Fast Follower 2..........................................................................................................................61
A.8 Summary of Findings on Order of Entry Effect on Market Share..............................62
A.9 The Speed of Entry on Market Share in a Heterogeneous Specification....................63
A.10 The Effect of Vintage on Market Size with an Alternative Specification.................64
A.11 The Order of Entry Effect on Elasticity.....................................................................65
A.12 The Order of Entry Effect on Elasticity with Alternative Definitions of Followers..66
A.13 The Order of Entry Effect on Market Share with Exogenized Entry.........................67
1 Distribution of Relabel Activity between the U.S. and U.K................................95
2 Descriptive Statistics...........................................................................................96
3 Effects of Relabeling on Demand........................................................................97
4 Effects of Relabeling on Demand: Low-Intensity Markets.................................98
5 Effects of Relabeling on Demand: High-Intensity Market................................ 99
6 Heterogeneous Impacts across Levels of Relabeling Severity......................... 100
7 Effects of Precaution/Adverse Reaction Relabeling on Demand..................... 101
8 Effects of Warning/Box Warning Relabeling on Demand.............................. .102
A.1 Baseline Results across Alternative Time Periods................................................... 103
A.2 Baseline Results across Alternative Treatment Periods........................................... 104
A.3 Variation in Relabeling Activity.............................................................................. 105
A.4 Effects of Relabeling on Demand: Low-Intensity Markets (Bottom Quartile) ....... 108
A.5 Effects of Relabeling on Demand: High-Intensity Markets (Top Quartile) ............ 109
A.6 Heterogeneous Relabeling Severity Across Alternative Time Period..................... 110
A.7 Heterogeneous Relabeling Severity Across Alternative Treatment Periods........... 111
A.8 Effects of Precaution/Adverse Selection Relabeling: Low-Intensity Market......... 112
A.9 Effects of Warning/Box Warning Relabeling: Low-Intensity Markets................... 113
A.10 Effects of Precaution/Adverse Selection Relabeling: High-Intensity Markets...... 114
A.11 Effects of Warning/Box Warning Relabeling: High-Intensity Markets................. 115
A.12 Effects of Relabeling on Demand across Market Size and Concentration............. 116
A.13 Effects of Relabeling on Market ATC N................................................................ 117
A.14 Effects of Relabeling on Market ATC-J..................................................................118
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