OBJECTIVES: Technological change in medicine has been a major cause of rising health care expenditures in many countries. The adoption of new drugs plays an important role in accounting for the growth of spending on prescription drugs. This paper uses the prescription drug market in Taiwan as an example to investigate the evolution of prices and quantities of new drugs. METHODS: A new drug is defined in our study as one that was included in the NHI formulary after 1996. The study sample includes new molecules, new formulations, combinations, and indications till 2006. We run a cross-sectional equation for the launch price of new NMEs, and a panel regression for price ratio of current price versus the launch prices. Furthermore, we run a panel regression model for both sales and market share of new drugs. RESULTS: The preliminary results show that the degree of competition in a therapeutic market is weakly associated with the launch price, but negatively associated with the price ratio. The pioneer product can maintain a relatively higher price ratio in a longer period, but the price ratio of new drugs for chronic diseases decreases more than that for acute diseases. The competition of therapeutic market increases the sales, but decreases the market share of new drugs. The pioneer product has a positive impact on the sales and market shares of new drugs. The sales of new drugs for chronic diseases are higher than that for acute diseases, but the growth of market share of new drugs for chronic diseases is lower than that for acute diseases. CONCLUSIONS: The competition in the therapeutic market does not affect the regulated prices at the time of entry, but decreases the price ratios over time. The characteristics of new drugs are the major factors affecting market expansion and market substitution of new drugs.