Sales Growth of New Pharmaceuticals across the Globe: The Role of Regulatory Regimes

1
Sales Growth of New Pharmaceuticals across the
Globe The Role of Regulatory Regimes

• Aurélie Lemmens
• Erasmus School of Economics
• Joint work with Stefan Stremersch
• Forthcoming at Marketing Science

2
International New Product Growth Studies

• Cross-national differences in new product growth,
  
• using mixed-influence model, takeoff, speed,
  growth rates, etc.
• Gatignon, Robertson Eliashberg (1989), Heeler
  Hustad (1980), Helsen, Jedidi DeSarbo (1993),
  Mahajan Muller (1994), Takada Jain (1991),
  Talukdar, Sudhir Ainslie (2002), Van Den Bulte
  Stremersch (2004), Tellis, Stremersch Yin
  (2003), Dekimpe, Parker Sarvary (1998),
  Desiraju, Nair Chintagunta (2004), Stremersch
  Tellis (2004),
• Sources of cross-national variation
• Economic
• Dekimpe, Parker Sarvary (1998), Gatignon,
  Robertson Eliashberg (1989), Helsen, Jedidi
  DeSarbo (1993), Stremersch Tellis (2004),
  Talukdar, Sudhir Ainslie (2002), Tellis,
  Stremersch Yin (2003)
• Socio-cultural
• Dekimpe, Parker Sarvary (1998), Gatignon,
  Robertson Eliashberg (1989), Helsen, Jedidi
  DeSarbo (1993), Stremersch Tellis (2004),
  Talukdar, Sudhir Ainslie (2002), Tellis,
  Stremersch Yin (2003), Van den Bulte
  Stremersch (2004)
• Cross-country lead-lag, introductory lag,
  learning effects
• Dekimpe, et al. (2000) Eliashberg and Helsen
  (1996), Takada and Jain (1991), Helsen, et al.
  (1993) Desiraju, et al. (2004).

3

• Have we overlook the role of regulation
• and regulatory regimes ?

4
Study Aim

• Characterizing the role regulation can play in
  the international sales growth of new products,
  in particular new pharmaceuticals.Theorizing
  and testing the time-varying effects of
  regulation, culture, economics, cross-country
  introduction delays, lagged sales and
  competition.
• Rationale for studying the role of regulation in
  international growth
• Danzon and Ketcham (2004), Heeler Hustad
  (1980), Kyle (2007), Mahajan Muller (1994),
  Shugan (2003), Stremersch Tellis (2004),
  Chintagunta Desiraju (2005), Berndt et al
  (2005).
• Large business press attention
• Public policy relevance, in particular in view of
  the recent European strategies
• Regulatory impact on new product growth is likely
  to be time-varying
• Non-stationary phenomenon
• Early rationale Tellis, Stremersch Yin (2003)
  versus Stremersch Tellis (2004)

5
Theoretical Framework
Regulation

• Manufacturer price ( ?)
• Direct control of the manufacturer price, based
  on the cost effectiveness of the drug and
  following negotiations between governments and
  manufacturers
• Many EU countries, such as Belgium, Finland,
  Greece, )

New Drug Sales

• Prices fall faster when regulated (Danzon and
  Chao 2000) that may intensify the effect over the
  PLC
• The typical price pattern for new drugs in
  countries that do not regulate prices versus
  countries that regulate prices.

6
Theoretical Framework
Regulation

• Manufacturer price
• Marketing efforts to physicians (- ?)
• Detailing, meetings, sampling
• Debate on the effect of marketing efforts on
  sales and prescription behavior (Chintagunta and
  Desiraju 2005, Hahn et al. 1994, Manchanda et al.
  2004, Gonul et al. 2001, Rosenthal et al. 2003,
  Parsons and Vanden Abeele 1981, Mizik and
  Jacobson 2004)
• Sales-to-ads elasticity decreases
• over the PLC (Chandy et al. 2001,
• Tellis and Fornell 1988)
• Compensated (partially) by the
• variation in marketing spending
• over the PLC

New Drug Sales
The typical pattern in marketing efforts for new
drugs in countries that do not restrict mktg
efforts vs. countries that restrict mktg efforts.
7
Theoretical Framework
Regulation

• Manufacturer price
• Marketing efforts to physicians
• Physician prescription budgets (- ?)
• Limits the number of prescriptions per doctor
• E.g. Germany, Latvia
• Stepwise prescribing behavior (Prosser et al.
  2003) moderating the effect at the beginning of
  the PLC
• Patient co-payment (-)
• Patients and governments copay the cost of the
  treatment
• E.g. Belgium
• Direct-to-consumer-advertising (- ?)
• New Zealand and USA
• DTCA trigger patients requests (Cohen 1988,
  Rosenthal et al. 2003, Wosinska 2002)
• Decreasing DTCA effectiveness over the PLC
  (Neslin 2001) caused by consumers decreasing
  motivation to search for information when drugs
  mature.

New Drug Sales
8
Theoretical Framework
Regulation
Culture

• Uncertainty avoidance
• Difference in subjective health (Hofstede 2001)
  ()
• Time variation risk associated with a new
  medication (Steenkamp et al. 1999, Michaut 2004)
  (?)
• Individualism
• Emphasis on individual well-being ()
• Time variation Need for the new medication (?)
• Masculinity
• Perceived weakness associated with medical
  treatments (-)
• Long-term orientation
• Short-run vs. long-run focus leading to different
  approaches to a disease (-)

New Drug Sales
9
Theoretical Framework
Regulation
Culture
Economy
New Drug Sales
10
Theoretical Framework
Regulation
Culture
Economy
New Drug Sales
Introductory Lag
Competition
Lagged Sales
11
Data

• Unique dataset
• First 84 months of country-level monthly sales
  (grams) per capita (IMS Health), from 2/1994 to
  12/2004
• 15 new molecules in 4 therapeutic categories
  (ATC)
• Statins Atorvastatin, Cerivastatin, Fluvastatin,
  Rosuvastatin
• Urinary antispasmodics Solifenacin, Tolterodine
• Erectile dysfunction Alprostadil, Apomorphine,
  Sildenafil, Tadalafil, Vardenafil
• Antihystaminica Desloratadine, Epinastine,
  Fexofenadine, Mizolastine
• 53 countries (developed and developing countries)

12
Data

13
Pharmaceutical Regulation

• Cross-national diversity
• 65 of the countries have a price regulation
  scheme E.g. Netherlands since 1996
• 16 regulate the marketing efforts to physicians
  E.g. France, U.K.
• 37 limit physicians prescription budgets E.g.
  Canada, New Zealand
• 75 apply a patient co-payment system E.g.
  Finland, Norway, Sweden.
• 2 countries do not prohibit DTCA, USA and New
  Zealand

14
Pharmaceutical Regulation
15
Country Descriptives
16
Model Specification

• yicjt monthly grams per thousand inhabitants
  above 14 years old of drug i in category c sold
  in country j at time t, with t1,,Ticj with Ticj
  the number of sample points for product i
  belonging to the drug category c in country j
• Time-varying coefficient model

where
with
with
17
Model Specification

• Modeling using penalized splines
• with , a set of K linear
  spline basis functions
  

,
18
Estimation

• The model can be written as a linear mixed model
  after rearranging the different terms
• Best linear unbiased predictor (BLUP), (RE)ML
• Easy to implement (e.g. PROC MIXED in SAS or lme
  in S/R)
• Can use all inference theory (e.g. hypothesis
  testing)

,
19
Instrumenting for Introductory Lag

• ENDOGENEITY Firms are likely to delay entry in
  countries that they judge less attractive (e.g.
  regulation, expected potential sales)
• Instrument introductory lag of the other drugs
  that belong to the same ATC class as drug i in a
  particular country j
• ? Predicted value from a regression of the
  endogenous variable on the entire set of
  exogenous variables Zij (Desiraju et al. 2004)
• with

20
Model Fit
21
Results Time-Invariant Effects
22
Results Time-Varying Effects
23
Results Time-Varying Effects
24
Results Time-Varying Effects
25
Conclusion, Limitations and Future Research

• Public Policy Instrument tailor the regulation
  w.r.t. to the desired time-varying effects
• Drug characteristics, nor marketing instruments
  (e.g. pricing/detailing) included (as is common
  in literature on international new product
  growth)
• Country health infrastructure, important when
  extending to hospital setting
• New drug sales, potential extension to consumer
  welfare