Patent Expiration, Entry, and Competition in the U.S. Pharmaceutical Industry

Abstract

THE ETHICAL PHARMACEUTICAL industry is an important one, not so much for its economic size as for the benefits that it delivers to users of its products. The industry has been transformed structurally since the 1940s from a producer of selected chemicals to a research-oriented sector that makes a major contribution to the technology of health care. I Its very success in generating a stream of new drugs with important therapeutic benefits has involved the industry in intense public policy debates over the financing of the cost of its research, the veracity of claims for its products, the prices charged for them (not to mention who pays those charges), and the socially optimal degree of patent protection. The policies and policy debates bearing on competition in the pharmaceutical industry revolve around two interrelated issues of welfare economics. The first is the trade-off between promoting innovative effort and securing competitive market outcomes. The research-oriented We would like to thank Joshua Angrist, Zvi Griliches, Andrea Shepard, and members of the National Bureau of Economic Research productivity group for helpful comments and discussion; numerous individuals in the industry who generously gave their time to provide us with background information; Denise Neumann for research assistance; and Ann Flack and Claudia Napolilli for their help in preparing this manuscript. Whinston thanks the National Science Foundation for financial support (SES-8921996). 1. Temin (1980, chaps. 1-4).

Offensive Patent Portfolio Races

“…This may happen, e.g., due to shifts in demand, the introduction of new production or distribution technologies, or market exit and entry. Even the threat of new market entry might trigger incumbents to increase patenting, since patents may work as market entry barriers (Bain, 1956;Caves, 1974;Caves et al, 1991;Porter, 1980;Rabino and Enayati, 1995).…”

An economic evaluation of the war on cancer

“…We assume that profit margins range from the high margins enjoyed by producers of on-patent pharmaceuticals, to the lower margins enjoyed by hospitals. For drugs, Caves et al (1991), Grabowski and Vernon (1992) and Berndt, Cockburn, and Griliches (1996) estimate that producer variable costs are 20% of sales. On the other hand, Gaynor and Vogt (2003) find that hospitals have profit margins of 25%.…”

The Pattern of Entry of Generic Drugs into the Brazilian Pharmaceutical Market

“…If on one hand this article describes the pattern of entry of generic drug suppliers into Brazil after the arrival of the first generic manufacturer in the Brazilian market, thus supporting the identification strategies used by Caves et al (1991), and Arvate et al (2013), on the other hand it contains some limitations. First, it does not allow for it to be identified how characteristics of the Brazilian market (such as income, population size, epidemiological and sanitary conditions, and other characteristics described in Morton (1997) and Kyle (2006)) affect the pattern of entry of generic drugs into Brazil.…”

“…Such studies implicitly assume that there is a continuous entry of generic drugs after their patent expiry, thus increasing the chance of generic suppliers entering into a public tender. However, no study prior to this article has sought to investigate whether this relationship suggested by Caves et al (1991), and Arvate et al (2013), is verified empirically. This article seeks to fill this gap in the literature.…”

“…Identifying, for example, whether there is a continuous entry of generic suppliers after the first generic in the market can provide empirical support for the identification strategy used in studies that analyze the effects of the entry of generic drugs (i.e., Caves et al, 1991, Arvate et al, 2013. In these papers, the number of days between patent expiry and the market operation date is used as an instrumental variable for the entry of generics into the market.…”