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Dynamic Competition in Pharmaceuticals: Patent Expiry, Generic Penetration, and Industry Structure

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  • Magazzini, Laura
  • Pammolli, Fabio
  • Riccaboni, Massimo

Abstract

This paper investigates patterns of industrial dynamics and competition in the pharmaceutical industry, with particular reference to the consequences of patent expiry in different countries. We focus on the competition at the level of single chemical entities, distinguishing between original brands and generic products. Quarterly data, spanning from July 1987 to December 1998, on sales of pharmaceutical products in four countries (USA, UK, Germany, and France) constitute the basis of our analysis. All the products containing major molecules whose patent expiration date lies between 1986 and 1996 are included in our sample. We show how diffusion of generics is linked to the characteristics of the market and investigate how price dynamics of original products are affected by generic competition. Our empirical investigation shows that the dynamics of drug prices and the competition by generic drugs vary significantly across countries. This heterogeneity notwithstanding, a clear distinction seems to emerge. On the one hand, systems that rely on market-based competition in pharmaceuticals promote a clear distinction between firms that act as innovators and firms that act as imitators after patent expiry. Here, original products enjoy premium prices and exclusivity profits under patent protection, and face fierce price competition after patent expiry. On the other hand, in systems that rely on administered prices, penetration by generic drugs tends to be rather limited. Its descriptive and preliminary nature notwithstanding, our analysis seems to have relevant implications at different levels of generality, especially for Europe.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15968.

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Date of creation: 10 Feb 2004
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Publication status: Published in The European Journal of Health Economics 2.5(2004): pp. 175-182
Handle: RePEc:pra:mprapa:15968

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Related research

Keywords: Pharmaceuticals; Patent expiration; Off-patent competition;

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References

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  1. Grabowski, Henry G & Vernon, John M, 1992. "Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act," Journal of Law and Economics, University of Chicago Press, vol. 35(2), pages 331-50, October.
  2. Laura Magazzini & Luigi Orsenigo & Fabio Pammolli, 2002. "The intensity of competition after patent expiry in pharmaceuticals. A cross-country analysis," Revue d'Économie Industrielle, Programme National Persée, vol. 99(1), pages 107-131.
  3. Yi, Sang-Seung, 1999. "Entry, licensing and research joint ventures," International Journal of Industrial Organization, Elsevier, vol. 17(1), pages 1-24, January.
  4. Danzon, Patricia M. & Chao, Li-Wei, 2000. "Cross-national price differences for pharmaceuticals: how large, and why?," Journal of Health Economics, Elsevier, vol. 19(2), pages 159-195, March.
  5. Hudson, John, 2000. "Generic take-up in the pharmaceutical market following patent expiry: A multi-country study," International Review of Law and Economics, Elsevier, vol. 20(2), pages 205-221, June.
  6. Aidan Hollis, 2003. "The Anti-Competitive Effects of Brand-Controlled "Pseudo- Generics" in the Canadian Pharmaceutical Market," Canadian Public Policy, University of Toronto Press, vol. 29(1), pages 21-31, March.
  7. Ashiya, Masahiro, 2000. "Weak entrants are welcome," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 975-984, August.
  8. Richard Blundell & Rachel Griffith & John Van Reenen, 1994. "Dynamic count data models of technological innovation," IFS Working Papers W94/10, Institute for Fiscal Studies.
  9. Sanghoon Ahn, 2002. "Competition, Innovation and Productivity Growth: A Review of Theory and Evidence," OECD Economics Department Working Papers 317, OECD Publishing.
  10. Gambardella, Alfonso & Orsenigo, Luigi & Pammolli, Fabio, 2000. "Global Competitiveness in Pharmaceuticals: A European Perspective," MPRA Paper 15965, University Library of Munich, Germany.
  11. Elias Mossialos, 1997. "Citizens' Views on Health Care Systems in the 15 Member States of The European Union," Health Economics, John Wiley & Sons, Ltd., vol. 6(2), pages 109-116.
  12. Andrew Ching, 2000. "Dynamic Equilibrium in the US Prescription Drug Market After Patent Expiration," Econometric Society World Congress 2000 Contributed Papers 1242, Econometric Society.
  13. Fiona M. Scott Morton, 1997. "Entry Decisions in the Generic Pharmaceutical Industry," NBER Working Papers 6190, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Crowe, Bronwyn & Lindner, Robert K. & Llewellyn, Rick S., 2005. "The benefits and beneficiaries of “public” investment in herbicide use research and development," 2005 Conference (49th), February 9-11, 2005, Coff's Harbour, Australia 139334, Australian Agricultural and Resource Economics Society.
  2. Pieter Dylst & Steven Simoens, 2011. "Does the Market Share of Generic Medicines Influence the Price Level?," PharmacoEconomics, Springer, vol. 29(10), pages 875-882, October.
  3. Appelt, Silvia, 2010. "Authorized Generic Entry prior to Patent Expiry: Reassessing Incentives for Independent Generic Entry," Discussion Papers in Economics 11476, University of Munich, Department of Economics.
  4. Joan Costa-i-Font & Nebibe Varol & Alistair McGuire, 2011. "Does pharmaceutical price regulation affect the adoption of generic competition?: evidence from the OECD, 1999-2008," LSE Research Online Documents on Economics 37537, London School of Economics and Political Science, LSE Library.
  5. Patricia M. Danzon & Michael F. Furukawa, 2011. "Cross-National Evidence on Generic Pharmaceuticals: Pharmacy vs. Physician-Driven Markets," NBER Working Papers 17226, National Bureau of Economic Research, Inc.
  6. Appelt, Silvia, 2010. "Authorized Generic Entry prior to Patent Expiry: Reassessing Incentives for Independent Generic Entry," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 357, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  7. Magazzini Laura & Fabio Pammolli, 2013. "R&D, Within and Between Patent Competition in the Pharmaceutical Industry," Working Papers 3/2013, IMT Institute for Advanced Studies Lucca, revised Jul 2013.
  8. Crowe, Bronwyn & Lindner, Bob & Llewellyn, Rick, 2006. "The benefits and beneficiaries of “public” investment in herbicide use research and development," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 174476, Australian Agricultural and Resource Economics Society.
  9. Leopold, Christine & Mantel-Teeuwisse, Aukje Katja & Vogler, Sabine & de Joncheere, Kees & Laing, Richard Ogilvie & Leufkens, Hubert G.M., 2013. "Is Europe still heading to a common price level for on-patent medicines? An exploratory study among 15 Western European countries," Health Policy, Elsevier, vol. 112(3), pages 209-216.
  10. Birg, Laura, 2013. "Pharmaceutical regulation and health policy objectives," Center for European, Governance and Economic Development Research Discussion Papers 183, University of Goettingen, Department of Economics.
  11. Iván Moreno-Torres & Jaume Puig-Junoy & Joan-Ramon Borrell, 2009. "Generic Entry into the Regulated Spanish Pharmaceutical Market," Review of Industrial Organization, Springer, vol. 34(4), pages 373-388, June.
  12. Laura Magazzini & Fabio Pammolli & Gianluca Papa & Nicola Carmine Salerno, 2005. "Generici vs. Branded: confronto internazionale su prodotti off-patent rimborsati dal SSN," Working Papers 01-2005, Competitività Regole Mecati (CERM).
  13. Carl Blankart & Tom Stargardt & Jonas Schreyögg, 2011. "Availability of and Access to Orphan Drugs," PharmacoEconomics, Springer, vol. 29(1), pages 63-82, January.
  14. Gonzalez, Jorge & Sismeiro, Catarina & Dutta, Shantanu & Stern, Philip, 2006. "Market Effects of Generic Entry: The Role of Physicians and of Non-Bioequivalent Competitors," MPRA Paper 3717, University Library of Munich, Germany, revised May 2007.

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