Authorized Generic Drugs, Price Competition, And Consumers’ Welfare

Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts, USA.
Health Affairs (Impact Factor: 4.97). 05/2007; 26(3):790-9. DOI: 10.1377/hlthaff.26.3.790
Source: PubMed


The growing frequency of authorized generics has important implications for the welfare of prescription drug consumers. Authorized generic entry could affect the timing of generic entry, brand-name and generic prices, and generic penetration. We reviewed 1999-2003 data and found that generic entry in the absence of short-run exclusivity restrictions benefits consumers through lower short-run prices. We suggest that these benefits likely also result from authorized generics. We posit that long-run prices and shares are likely essentially unaffected by authorized generics and that potential costs to consumers from any delayed generic entry are likely small.

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    • "generic entry and consumer welfare in the U.S. is likely to be small. Berndt et al. (2007a) emphasize also that there is no comprehensive empirical evidence based on recent data that would show early entry to have had a delaying or deterring effect on generic entry. "
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    ABSTRACT: Patent holders frequently attempt to mitigate the loss of monopoly power by authorizing generic entry prior to patent expiry (early entry). Competition in off-patent pharmaceutical markets may be adversely affected if early entry substantially impairs the attractiveness of subsequent market entry. I examine generic entry decisions made in the course of recent patent expiries to quantify the impact of early entry on incentives for generic entry. Using unique micro data and accounting for the endogeneity of early entry, I estimate recursive bivariate probit models of entry. Drug markets' pre-entry revenues largely determine both independent generic entry and early entry decisions. Early entry in turn has no significant impact on the likelihood of generic entry. Original drug producers appear to authorize generic entry prior to loss of exclusivity primarily fueled by rent-seeking rather than strategic entry-deterrence motives.
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    • "However, this increased competition among generic drugs did not affect brand-drug prices. See [42] [43]; and [3] for more discussion on the relationship between prices and generic entry. Other articles look at factors such as market share rebates to explain drugs prices [19]. "
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    ABSTRACT: The goal of this study is to examine how four factors - level of competition, therapeutic purpose, age of the drug, and manufacturer play a role in the pricing of brand-name prescription drugs. Understanding how these factors contribute to high drug prices will allow players in this supply chain to negotiate more favorable contract terms. This can be a large benefit to society as this insight can lead to improved efficiency in pricing and increased savings, which can be passed to the consumer.We develop measures for these factors based on publicly available information. Using data on the wholesale prices of prescription drugs, we estimate a model for drug prices based on our measures of competition, therapeutic purpose, age, and manufacturer. Our analysis reveals that these factors are significant in estimating drug prices. We observe that proliferation of dosing levels tends to reduce the prices, therapeutic conditions which are both less common and more life-threatening lead to higher prices, older drugs are less expensive than newer drugs, and some manufacturers set prices systematically different from others even after controlling for other factors. These findings indicate that publicly observable factors can be used to explain drug prices.
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    • "In small and medium-sized markets on the contrary, entry deterrence motives play a role as the impact on the extent of generic entry and prices is relatively large. Recent evidence on entry deterrence and consumer welfare effects of authorized generic entry in the US has also been provided by Berndt et al. (2007a,b). In both studies, the effect of authorized generics on the filing of ANDAs 4 with a paragraph IV certification (claim of patent non-infringement or invalidity) is examined. "
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    ABSTRACT: As a fundamental appropriability mechanism in pharmaceuticals, patents allow innovators to obtain monopoly rents for a limited time period in return for huge R&D investments. Industry practices suggest that innovators have found ways to circumvent the loss of monopoly power as patents expire. This study investigates the relevant issue of generic entry deterrence examining the joint impact of early entries and trademarks. Estimating a bivariate probit model that accounts for the endogeneity of early entry, we establish evidence for generic entry deterrence. We show that early entry has a significant and sizeable negative effect on generic entry which trademarks intensify.
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