nach oben

International Journal of Health Economics and Management

Erschienen in:

23.12.2016 | Research Article

Product safety spillovers and market viability for biologic drugs

verfasst von: John Romley, Tiffany Shih

Erschienen in: International Journal of Health Economics and Management | Ausgabe 2/2017

Einloggen, um Zugang zu erhalten

Abstract

When a pharmaceutical manufacturer experiences a safety problem, negative impacts on profitability can spread to its competitors. Reduced consumer confidence, product recalls, and litigation are limited to the responsible manufacturer only if that manufacturer can be clearly linked to the safety problem. We analyze the impact of “accountability” for safety problems on manufacturer entry decisions and investments to mitigate risk. Consistent with prior research, we find investment levels increase with accountability in a duopoly market, and that accountability can thus enhance market viability and improve consumer welfare. However, we also analyze the impact of accountability on entry of a competitor, after the originator’s exclusivity has expired. Accountability promotes the development of a robust market by raising expected profits, particularly for an entrant with a relatively low likelihood of a safety problem. Yet entry need not improve consumer welfare, and may benefit the incumbent in our model. In contrast to the traditional entry deterrence mechanism, when accountability is sufficiently low, increased incumbent investment encourages entry. Our analysis has important implications for biologic drugs, insofar as pathways for entry by “biosimilars” have been established in Europe and the United States, and informs pharmacovigilance and other accountability policies for biologics.

Nur mit Berechtigung zugänglich

An example in of a major safety issue in small-molecule drugs was the Vioxx (rofecoxib) recall of 2004, when the drug’s prior year global sales totaled $2.5 billion. The arthritis drug was estimated to be associated with up to 140,000 excess cases of serious coronary heart disease in the U.S. between 1999 and 2004, which itself demonstrates a fatality rate of 44% (Graham et al. 2005).

http://blogs.fda.gov/fdavoice/index.php/tag/biological-products/.

In our model, firms cannot determine with certainty whether their product will have a serious safety problem prior to consumption, and thus there is no opportunity for firms to take preventative actions or signal based on the realization of a safety problem. Despite the inability to perfectly predict a safety outcome, in practice, drug companies can plausibly undertake activities which have the effect of reducing the risk of serious safety problems and thereby safety spillovers. For example, a company can build a production facility with state-of-the-art quality control, or develop hiring, monitoring, promotion, and retention policies that create a culture of safety across its products. Similarly, drug companies can conduct extensive investigations of toxicity before marketing a product. While these investments may reduce the likelihood of a safety problem, firms and consumers are symmetrically imperfectly informed about the realization of safety problems before consumption.

Equation (2) uses the normalization $CS^{2}\left( {0,0} \right) =0$ in period 2.

Note that Proposition 3 also holds when both firms can adjust their safety investments after the entry decision is made, if safety investments are complements. Under these assumptions, $\frac{d{\Pi }_2^*}{da}=\frac{\partial {\Pi }_2^*}{\partial s_1 }\left( {\frac{ds_1^*}{da}} \right) +\frac{\partial {\Pi }_2^*}{\partial s_2 }\left( {\frac{ds_2^*}{da}} \right) +\frac{\partial {\Pi }_2^*}{\partial a}=s_2 \left( {\pi _d -a\pi _m } \right) \frac{ds_1^*}{da}+\pi _m s_2 \left( {1-s_1 } \right) .$ Taking the derivative of this expression with respect to $s_2 $ provides $\frac{d^{2}{\Pi }_2^*}{ds_2 da}=\left( {\pi _d -a\pi _m } \right) \frac{ds_1^*}{da}+\pi _m \left( {1-s_1 } \right) $, which is positive under complements ($\pi _d -a\pi _m >0$ and by the results in “Accountability in a duopoly market” section, $\frac{ds_1^*}{da}>0)$.

A duopoly need not produce more consumer surplus because high monopoly price may lead to substitution toward the outside options, so fewer consumers consume a product with safety problems.

In the case of the FDA’s approval of biosimilar Zarxio, the FDA assigned an interim distinguishable name (filgrastim-sndz), but noted the policy has not been set.

Our work has implications in the international context as well, particularly in low- and middle-income countries, where pharmacovigilance systems are more often resource-constrained (Pirmohamed et al. 2007). In this context, a lack of formal and comprehensive national pharmacovigilance systems may limit successful accountability. This concern was borne out recently in Thailand, when users of intended copies of Johnson & Johnson’s biopharmaceutical erythropoietin experienced an elevated risk of pure red-cell aplasia, a serious immune reaction. The government was unable to identify the product responsible, partly due to shared non-proprietary names for biologic drugs produced by multiple manufacturers (Siegal 2014; Wish 2011). Beyond the specific context of pharmacovigilance, the quality of healthcare in the developing world is an important issue and active field of research (see, e.g., Bennett and Yin 2014; Das et al. 2015).

Price-cost margins and thus profits are positive for both manufacturers, ensuring that manufacturers can recoup fixed costs including R&D (Dimasi et al. 2003).

Akerlof, G. A. (1970). The market for “lemons”: Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 80, 488–500.

Allen, F. (1984). Reputation and product quality. The RAND Journal of Economics, 15(3), 311–327.

Anderson, S., De Palma, A., & Thisse, J. (1992). Discrete choice theory of product differentiation. New York: MIT press.

Bennett, D., & Yin, W. (2014). The market for high-quality medicine. No. w20091. National Bureau of Economic Research.

Berry, S., Levinsohn, J., & Pakes, A. (1995). Automobile prices in market equilibrium. Econometrica: Journal of the Econometric Society, 63(4), 841–890.

Caplin, A., & Nalebuff, B. (1991). Aggregation and imperfect competition: On the existence of equilibrium. Econometrica: Journal of the Econometric Society, 59(1), 25–59.

Carriquiry, M., & Babcock, B. A. (2007). Reputations, market structure, and the choice of quality assurance systems in the food industry. American Journal of Agricultural Economics, 89, 12–23.CrossRef

Casadevall, N., Edwards, I. R., Felix, T., Graze, P. R., Litten, J. B., Strober, B. E., et al. (2013). Pharmacovigilance and biosimilars: Considerations, needs and challenges. Expert Opinion on Biological Therapy, 13, 1039–1047.CrossRefPubMed

Cawley, J., & Rizzo, J. A. (2008). Spillover effects of prescription drug withdrawals. Advances in Health Economics and Health Services Research, 19, 119–144.CrossRefPubMed

Chauhan, D., Towse, A., & Mestre-Ferrandiz, J. (2013). The market for biosimilars: Evolution and policy options. OHE briefing no. 45, Office of Health Economics, London. 2008.

Collins, J. M., Simon, K. I., & Tennyson, S. (2013). Drug withdrawals and the utilization of therapeutic substitutes: The case of Vioxx. Journal of Economic Behavior & Organization, 86, 148–168.CrossRef

Das, J., Holla, A., Mohpal, A., & Muralidharan, K. (2015). Quality and accountability in healthcare delivery: Audit-study evidence from primary care in India. No. w21405. National Bureau of Economic Research.

Dimasi, J. A., Hansen, R. W., & Grabowski, H. G. (2003). The price of innovation: New estimates of drug development costs. Journal of Health Economics, 22, 151–185.CrossRefPubMed

Ellison, G. & Ellison, S. F. (2007). Strategic entry deterrence and the behavior of pharmaceutical incumbents prior to patent expiration. National Bureau of Economic Research.

Grabowski, H., Cockburn, I., & Long, G. (2006). The market for follow-on biologics: How will it evolve? Health Affairs, 25, 1291–1301.CrossRefPubMed

Graham, D. J., Campen, D., Hui, R., Spence, M., Cheetham, C., Levy, G., et al. (2005). Risk of acute myocardial infarction and sudden cardiac death in patients treated with cyclo-oxygenase 2 selective and non-selective non-steroidal anti-inflammatory drugs: Nested case-control study. The Lancet, 365(9458), 475–481.CrossRef

Hennessy, S., Leonard, C., & Platt, R. (2010). Assessing the safety and comparative effectiveness of follow-on biologics (biosimilars) in the United States. Clinical Pharmacology & Therapeutics, 87, 157–159.CrossRef

Immordino, G., Pagano, M., & Polo, M. (2011). Incentives to innovate and social harm: Laissez-faire, authorization or penalties? Journal of Public Economics, 95, 864–876.CrossRef

Klein, B. & Leffler, K. B. (1981). The role of market forces in assuring contractual performance. The Journal of Political Economy, 89(4), 615–641.

Kolstad, C. D., Ulen, T. S., & Johnson, G. V. (1990). Ex post liability for harm vs. ex ante safety regulation: Substitutes or complements? The American Economic Review, 80(4), 888–901.

Lietzan, E., Sim, L. E. & Alexander, E. A. (2013). Biosimilar naming: How do adverse event reporting data support the need for distinct non-proprietary names for biosimilars? Food and Drug Policy Forum, 3(6).

Marinigh, R., Lane, D. A., & Lip, G. Y. (2011). Severe renal impairment and stroke prevention in atrial fibrillation: Implications for thromboprophylaxis and bleeding risk. Journal of the American College of Cardiology, 57, 1339–1348.CrossRefPubMed

Mcquade, T., Salant, S. W. & Winfree, J. (2010). Regulating an experience good in developing countries when consumers cannot identify producers. Forthcoming in review of development economics.

Philipson, T. J., & Sun, E. (2008). Is the food and drug administration safe and effective? The Journal of Economic Perspectives, 22, 85–102.CrossRefPubMed

Pirmohamed, M., Atuah, K. N., Dodoo, A. N., & Winstanley, P. (2007). Pharmacovigilance in developing countries. British Medical Journal, 335, 462–462.CrossRefPubMedPubMedCentral

Pouliot, S., & Sumner, D. A. (2008). Traceability, liability, and incentives for food safety and quality. American Journal of Agricultural Economics, 90, 15–27.CrossRef

Pouliot, S. & Sumner, D. A. (2012). Traceability, recalls, industry reputation and product safety. European Review of Agricultural Economics, 43(5), jbs006.

Scott Morton, F. & Kyle, M. (2012) Markets for pharmaceutical products. Handbook of Health Economics, 2(12), 765.

Shapiro, C. (1982). Consumer information, product quality, and seller reputation. The Bell Journal of Economics, 13(1), 20–35.

Shapiro, C. (1983). Premiums for high quality products as returns to reputations. The Quarterly Journal of Economics, 98(4), 659–679.

Siegal, J. P. (January 7 2014). RE: Citizen petition to food and drug administration from the Janssen Pharmaceutical Companies of Johnson & Johnson.

Starbird, S. A. (2005). Moral hazard, inspection policy, and food safety. American Journal of Agricultural Economics, 87, 15–27.CrossRef

U.S. Food and Drug Administration. (2011). Generic enoxaparin questions and answers [Online]. US Department of Health & Human Services. http://www.fda.gov/Drugs/DrugSafety/PostmarketDrugSafetyInformationforPatientsandProviders/ucm220037.htm. Accessed 6 Nov 2014.

Wang, B., Gagne, J. J., & Choudhry, N. K. (2012). The epidemiology of drug recalls in the United States. Archives of Internal Medicine, 172(14), 1110–1111.CrossRef

Winfree, J. A., & Mccluskey, J. J. (2005). Collective reputation and quality. American Journal of Agricultural Economics, 87, 206–213.CrossRef

Wish, J. B. (2011). Erythropoiesis-stimulating agents and pure red-cell aplasia: You can’t fool Mother Nature. Kidney International, 80, 11–13.CrossRefPubMed

Titel: Product safety spillovers and market viability for biologic drugs
verfasst von: John Romley
Tiffany Shih
Publikationsdatum: 23.12.2016
Verlag: Springer US
Erschienen in: International Journal of Health Economics and Management / Ausgabe 2/2017
Print ISSN: 2199-9023
Elektronische ISSN: 2199-9031
DOI: https://doi.org/10.1007/s10754-016-9208-2

Springer Medizin

Abstract

Bitte loggen Sie sich ein, um Zugang zu diesem Inhalt zu erhalten

Weitere Artikel der Ausgabe 2/2017

Effect of pay-for-performance on cervical cancer screening participation in France

The availability and marginal costs of dependent employer-sponsored health insurance

Rationing in health care provision: a welfare approach

Drug innovation, price controls, and parallel trade

Effects of formal home care on hospitalizations and doctor visits

Means-tested public support and the interaction between long-term care insurance and informal care