Abstract

This paper provides empirical evidence on the leading factors affecting the prices of new pharmaceuticals, both at introduction and after 4, 6, and 8 years. Most important is the extent of therapeutic advance embodied in a new product. For drugs which represent important therapeutic gains, launch prices can be two or three times those of existing drugs used for the same purposes, while drugs that largely duplicate the actions of currently available products are typically priced at comparable levels. In addition, the number of branded substitutes has a substantial negative effect on launch prices, which reflects the importance of competitive pressures. Duplicate products thereby play an important economic role in pharmaceutical markets.

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