Pharmaceutical innovations and market dynamics: Tracking effects on price in...
`Brookings Papers on Economic Activity; 1996; ABI/INFORM Globalpg 133
`
`ERNST R. BERNDT
`Massachusetts Institute of Technolog_v and
`National Bureau of Economic Research
`
`lAIN M. COCKBURN
`University of British Columbia and
`National Bureau of Economic Research
`
`ZVI GRILICHES
`Harvard University and
`National Bureau of Economic Research
`
`Pharmaceutical Innovations and
`Market Dynamics: Tracking Effects
`on Price Indexes for
`Antidepressant Drugs
`
`THE CONSTRUCTION AND PUBLICATION of measures of price inflation are
`important tasks carried out by governmental statistical agencies. In the
`United States the Department of Labor's Bureau of Labor Statistics
`(BLS) publishes price indexes measured at the point of final consumer
`demand (the consumer price index, CPI) and at the initial transaction
`
`We gratefully acknowledge the cooperation of officials from the U.S. Bureau of
`Labor Statistics. in particular Commissioner Katharine Abraham. as well as Assistant
`Commissioner John M. Galvin. Irwin Gerduk. and Douglas Kanoza in the Office of
`Industrial Price~ and Dennis Fixler, Division of Price and Index Number Research. We
`have also benefited from the timely and able research assistance of Gillian Currie and
`Mark Moore. We thank Martin Baily. Stan Finkelstein, Richard Frank, Theodore Keeler.
`Peter Reiss. Jack Triplett, and Cliff Winston for comments. Research support from the
`National Science Foundation, the U.S. Bureau of Economic Analysis, the Alfred P.
`Sloan Foundation. and Eli Lilly Inc. is gratefully acknowledged. as is the considerable
`data support from Stephen Chappell and Robert Plefka at IMS International and from
`Rhea Mihalison. Phyllis Rausch, Ditas Riad, and Paul Snyderman at Merck & Co. The
`opinions and conclusions expressed in this paper are those of the authors and do not
`necessarily reflect views or positions of any of the organizations with which the authors
`are affiliated or those of any of the research sponsors.
`
`133
`
`Reproduced with permission of the copyright owner. Further reproduc ion prohibited without permission.
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`Ernst R Berndt; Iain M Cockburn; Zvi Griliches; Theodore E Keeler; Martin Nei
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`Ernst R. Berndt, lain M. Cockburn. and Zvi Griliches
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`149
`
`passage of the 1984 Waxman- Hatch Act. 'h By 1996 eighteen or so
`distributors were offering generic products for each of the TCA drugs
`facing generic competition, up sharply from about ten in 1988. Not all
`generic entry has been sustained; although Surmontil faced generic
`entry in 1988. in 1992 the generic competition exited, and none has
`emerged since then.
`The introduction of Prozac in 1988 marked the entry of an entire new
`class of antidepressants, the highly successful SSRis. Other SSRI
`branded drugs were Zoloft. introduced in 1992, Paxil in 1993, Luvox
`in 1994, and Serzone in 1995; Effexor, a related product, was also
`introduced in 1994.
`
`Prices and Market Shares
`
`Next we look at market share and price movements, first among the
`four classes of antidepressant drugs listed in table 2. During 1980-88
`the MAOis had only a very minor unit and revenue market share,
`between 1.4 percent and 2.4 percent, and after 1988 this share dropped
`even further: the 1996 share was but 0.3 percent.
`In 1980 the TCAs accounted for about 98 percent of both the daily
`dosage quantities sold and total antidepressant revenues. By 1987 the
`TCA unit share fell slightly, to 90 percent, as trazodone (from a differ(cid:173)
`ent class of drugs) increased its unit market share to about 8 percent;
`the corresponding TCA revenue shares were 77 percent and 21 percent.
`Among the TCAs, three dominated in 1980: amitriptyline had a 50
`percent unit share, doxepin 22 percent, and imipramine 18 percent, for
`a combined share of 90 percent. By 1987 this combined share fell to
`80 percent, as sales of products such as desipramine, amoxapine, and
`nortriptyline (having fewer and less severe side effects-see table 1)
`increased to a combined 14 percent unit share. The three largest TCAs
`accounted for about 82 percent of total TCA dollar sales in 1980, but
`only 49 percent in 1987, in large part because all three products faced
`increased generic competition in the 1980s.
`The launching of Prozac was a huge success. Not only did this first
`SSRI take market share away from the TCAs, but it also expanded
`enormously the size of the overall antidepressant drug marketplace.
`
`36. For discussion of this legislation and its consequences, see Grabowski and Ver(cid:173)
`non ( 1992).
`
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`!50
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`Brookings Papers: Microeconomics 1996
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`General practitioners and internists, not just psychiatrists, were now
`able to prescribe antidepressants comfortably, for concerns about side
`effects and adverse interactions with Prozac were much less intense
`than with the TCAs. Moreover, because the daily dosage for Prozac
`was the same for almost everyone, specialist knowledge and experience
`concerning optimal patient-specific dosages, typically required for
`many of the TCA drugs, were no longer necessary. At the end of its
`first year on the market (1988), the Prozac daily dosage share among
`all antidepressants was II percent, and given its higher price, its dollar
`market share was 21 percent; by 1991 these shares had increased to 29
`percent and 51 percent, respectively.
`The SSRI market continued to grow rapidly following entry by ad(cid:173)
`ditional SSRis, and by 1996 the SSRI market share among all antide(cid:173)
`pressants was 63 percent in daily dosage units and a remarkable 84
`percent in dollars; unit market shares for the TCAs fell from 90 percent
`in 1987 to 27 percent in 1996, while revenue shares dropped even more
`dramatically, from 77 percent to 7 percent. Clearly, for many physi(cid:173)
`cians and patients dealing with the treatment of depression, the SSRis
`were enormously successful in fulfilling unmet needs.
`Within the SSRI subclass of drugs, unit sales of Prozac continued to
`grow, from 340 million daily units in 1991 to 645 million in 1995. But
`the great success of Zoloft and Paxil in expanding the overall SSRI
`market has implied a loss in Prozac's market share; in 1996 SSRI daily
`dosage market shares for Prozac, Zoloft, and Paxil were 41.6 percent,
`41.5 percent, and 12.6 percent, respectively, while corresponding dol(cid:173)
`lar market shares were 48.0 percent, 29.8 percent, and 17.8 percent.
`Moreover, the unit shares of Prozac, Zoloft, and Paxil prescriptions
`written by nonpsychiatrists were 39 percent, 51 percent, and 49 percent,
`respectively, indicating proportionally more nonspecialist prescriptions
`written for Zoloft and Paxil than for ProzacY
`Prozac and other SSRI entrants have been tremendously successful
`despite their higher daily dosage prices. When Prozac was launched in
`1988, for example, its daily price was about $1.18, almost double the
`$0.60 daily price of the branded version of the leading selling tricyclic,
`amitriptyline, and more than twenty times the $0.05 daily price for
`generic versions of that chemical entity; doxepin, the second best-
`
`37. IMS (1996a).
`
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`Ernst R. Berndt, lain M. Cockburn, and Zvi Griliches
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`151
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`selling tricyclic, was also much cheaper than Prozac-$0. 70 a day in
`its branded version and $0.21 in generic form. When Zoloft, the second
`SSRI entrant, was launched in 1992, its daily price was set at about 25
`percent lower than that of Prozac-$1. 26 compared with $1.69. Ser(cid:173)
`zone, the most recent SSRI, is priced in between Prozac and Zoloft.
`In constructing a price index, what happens following entry of ge(cid:173)
`neric competition is very important. ' 8 In table 3 we summarize price
`and market share developments at twelve, twenty-four, and thirty-six
`months following initial generic entry for the seven chemical entities
`experiencing initial generic competition since 1980. The top panel
`shows that although considerable variability is present. unweighted
`average generic prices are about 57 percent, 43 percent, and 35 percent
`of brand prices after one, two, and three years. 3
`Y Substantial differences
`in market share penetration are also present. Measured in daily units,
`generic market shares vary from 5 percent to 68 percent of brand shares
`after one year and average about 27 percent, while they average about
`44 percent and 54 percent after two and three years, respectively.
`There does not appear to be any dominant time trend to generic
`penetration rates, although the market share of the most recent generic
`entrant. nortriptyline, is the largest after one, two, and three years.
`Because generic prices are lower than brand prices, dollar shares are
`smaller than unit shares; even so, after just one year the nortriptyline
`dollar share is 56 percent.
`The generic price can fall relative to the brand price if the generic
`price decreases, the brand price increases, or both. As the second panel
`of table 3 shows, manufacturers have tended to increase the price of
`branded products following generic entry, apparently focusing on the
`price inelastic market segment and letting generics gain market share
`from the elastic segment; after one, two, and three years. the average
`
`38. For discussion of generic pricing and responses by incumbents. see Caves.
`Whinston, and Hurwitz ( 1991 ); Frank and Salkever ( 1992); Grabowski and Vernon
`(1992); Griliches and Cockburn (1994): Hurwitz and Caves (1988); and Masson and
`Steiner ( 1985).
`39. These trends in prices of generic drugs for treatment of a relatively chronic
`condition such as depression differ considerably from those reported by Griliches and
`Cockburn ( 1994) for systemic infectives. which tend to be used in the treatment of more
`acute conditions. For generic antidepressants (except nortriptyline), the initial price
`discount is larger. but after that the relative price is flatter than that of generic systemic
`anti-infectives.
`
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`
`Nominal prirt per day
`
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`
`Pr01rur brand prru afru /:t'ntrir tntry (Gm~m mlr)' dale
`
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`Rt-fmi•·~ price gentm·
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`S1~uut IMS Amcnu, Int.:
`
`nortriptyline
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`maprotlime
`dc:.1pramine
`trazotlone
`doxepin
`
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`amoxapine
`trimipramine
`maprotiline
`dc;1pramine
`tra;otlnne
`tlo~epm
`
`en/If\'
`Chemical
`
`Per~cntage
`Ththt, Thtnty·four, and Thirty·six Months afttr lnlroduction
`lllble 3. Relatin Prices and Markel Shart Penetration of Gtneric Antidepressant Drugs Introduced since 1986
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`Ernst R. Berndt, lain M. Cockburn, and Zvi Griliches
`
`!53
`
`nominal price increases for the branded products are about II percent,
`26 percent, and 42 percent (average real price increases are about 7
`percent, 18 percent, and 27 percent, respectively).
`With this data as background, we now summarize procedures the
`BLS has used to track and measure price indexes in this rapidly chang(cid:173)
`ing antidepressant drug marketplace.
`
`BLS Procedures and Samples for Tracking the Antidepressant
`Drug Market
`
`Currently the PPI program at the BLS encompasses the construction
`of monthly aggregate price indexes for almost five hundred mining and
`manufacturing industries, including approximately ten thousand in(cid:173)
`dexes for specific product categories, based on reports from approxi(cid:173)
`mately twenty-five thousand companies that respond voluntarily. For
`the specific product category called prescription pharmaceutical prep(cid:173)
`arations, the BLS has been publishing a PPI since January 1961. In
`June 1981 the BLS began publishing a price index for a category of
`drugs called psychotherapeutics. The specific products the BLS sam(cid:173)
`pled for this price index were drawn in 1980 and are known as "Cycle
`A'' items. Although the psychotherapeutic category consisted of sub(cid:173)
`categories for tranquilizers and antidepressants, separate price indexes
`for these distinct and more disaggregated subcategories were not offi(cid:173)
`cially published. Unfortunately, the BLS has not kept files on which
`particular psychotherapeutic drugs and presentations made up the Cycle
`A sample and what their index weights were.
`About six years later, in December 1987, the BLS drew up a new
`sample, implementing where possible a sampling procedure in which
`items were chosen in such a way that the probability of selection was
`proportional to a product's value of shipments. •o A separate antide(cid:173)
`pressant drug subcategory was created, and specific items were chosen
`for that subcategory in what the BLS calls its "Cycle B" sample. For
`six years beginning in December 1987, the BLS computed and pub(cid:173)
`lished a PPI for antidepressant drugs based on this Cycle 8 sample. In
`
`40. For a discussion. see the appendix in Berndt. Griliches. and Rosett ( 1993).
`
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`
`PAGE 6 OF 6