IDEAS home Printed from https://ideas.repec.org/a/aea/jecper/v39y2025i2p27-52.html
   My bibliography  Save this article

Patents, Innovation, and Competition in Pharmaceuticals: The Hatch-Waxman Act after 40 Years

Author

Listed:
  • C. Scott Hemphill
  • Bhaven N. Sampat

Abstract

A central policy issue in pharmaceuticals is how to balance the dynamic benefits of new drugs against the static benefits of low prices for existing drugs. In the United States, that balance is set by the Hatch-Waxman Act. We review the Act's origins and key features, then present evidence on its effects on competition and innovation. On the competition side, we show how the Act creates incentives for brands to accumulate patents and generics to challenge them, with the result being a rough stalemate. We also discuss strategies deployed by brands to delay generic entry. On the innovation side, we show that the Act's patent extension provisions—which aim to allow branded firms to make up for time lost during clinical trials and regulatory review—are incomplete, resulting in potential distortions. The net result is a convoluted and expensive approach to balancing innovation and competition.

Suggested Citation

  • C. Scott Hemphill & Bhaven N. Sampat, 2025. "Patents, Innovation, and Competition in Pharmaceuticals: The Hatch-Waxman Act after 40 Years," Journal of Economic Perspectives, American Economic Association, vol. 39(2), pages 27-52, Spring.
    • Handle: RePEc:aea:jecper:v:39:y:2025:i:2:p:27-52
    DOI: 10.1257/jep.20241423
    as

    Download full text from publisher

    File URL: https://www.aeaweb.org/doi/10.1257/jep.20241423
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.
    File URL: https://doi.org/10.3886/E218443V1
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/materials/22976
    Download Restriction: no
    File URL: https://www.aeaweb.org/articles/materials/22977
    Download Restriction: no
    File URL: https://libkey.io/10.1257/jep.20241423?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hemphill, C. Scott & Sampat, Bhaven N., 2012. "Evergreening, patent challenges, and effective market life in pharmaceuticals," Journal of Health Economics, Elsevier, vol. 31(2), pages 327-339.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Branstetter, Lee & Chatterjee, Chirantan & Higgins, Matthew J., 2022. "Generic competition and the incentives for early-stage pharmaceutical innovation," Research Policy, Elsevier, vol. 51(10).
    2. Hazel V. J. Moir, 2016. "Exploring Evergreening: Insights from Two Medicines," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 49(4), pages 413-431, December.
    3. Lucy Xiaolu Wang, 2023. "A cost-benefit analysis of the medicines patent pool," Economics Bulletin, AccessEcon, vol. 43(3), pages 1298-1319.
    4. Beall, Reed F. & Hardcastle, Lorian & Clement, Fiona & Hollis, Aidan, 2019. "How will recent trade agreements that extend market protections for brand-name prescription pharmaceuticals impact expenditures and generic access in Canada?," Health Policy, Elsevier, vol. 123(12), pages 1251-1258.
    5. Böhm, Sebastian & Grossmann, Volker & Strulik, Holger, 2021. "R&D-driven medical progress, health care costs, and the future of human longevity," The Journal of the Economics of Ageing, Elsevier, vol. 18(C).
    6. Eric Budish & Benjamin Roin & Heidi Williams, 2013. "Do fixed patent terms distort innovation? Evidence from cancer clinical trials," Discussion Papers 13-001, Stanford Institute for Economic Policy Research.
    7. Fabian Gaessler & Stefan Wagner, 2022. "Patents, Data Exclusivity, and the Development of New Drugs," The Review of Economics and Statistics, MIT Press, vol. 104(3), pages 571-586, May.
    8. Farasat A. S. Bokhari & Franco Mariuzzo & Anna Rita Bennato, 2021. "Innovation and growth in the UK pharmaceuticals: the case of product and marketing introductions," Small Business Economics, Springer, vol. 57(1), pages 603-634, June.
    9. Chatterjee, Chirantan & Kubo, Kensuke & Pingali, Viswanath, 2015. "The consumer welfare implications of governmental policies and firm strategy in markets for medicines," Journal of Health Economics, Elsevier, vol. 44(C), pages 255-273.
    10. Wang, Lucy Xiaolu, 2022. "Global drug diffusion and innovation with the medicines patent pool," Journal of Health Economics, Elsevier, vol. 85(C).
    11. Ding, Yucheng & Zhao, Xin, 2019. "Pay-for-delay patent settlement, generic entry and welfare," International Journal of Industrial Organization, Elsevier, vol. 67(C).
    12. Sanzenbacher, Geoffrey T. & Wettstein, Gal, 2020. "Drug insurance and the strategic behavior of drug manufacturers: Evergreening and generic entry after Medicare Part D," Journal of Health Economics, Elsevier, vol. 72(C).
    13. Henry Grabowski & Carlos Brain & Anna Taub & Rahul Guha, 2017. "Pharmaceutical Patent Challenges: Company Strategies and Litigation Outcomes," American Journal of Health Economics, MIT Press, vol. 3(1), pages 33-59, Winter.
    14. Margaret K. Kyle, 2020. "The Alignment of Innovation Policy and Social Welfare: Evidence from Pharmaceuticals," Innovation Policy and the Economy, University of Chicago Press, vol. 20(1), pages 95-123.
    15. Eric Helland & Seth A. Seabury, 2016. "Are Settlements in Patent Litigation Collusive? Evidence from Paragraph IV Challenges," NBER Working Papers 22194, National Bureau of Economic Research, Inc.
    16. Durvasula, Maya & Hemphill, C. Scott & Ouellette, Lisa Larrimore & Sampat, Bhaven & Williams, Heidi L., 2023. "The NBER Orange Book Dataset: A user’s guide," Research Policy, Elsevier, vol. 52(7).
    17. Neil Gandal & Michal Shur-Ofry & Michael Crystal & Royee Shilony, 2021. "Out of sight: patents that have never been cited," Scientometrics, Springer;Akadémiai Kiadó, vol. 126(4), pages 2903-2929, April.
    18. Hazel V. J. Moir, 2013. "Fabricating Invention: The Patent Malfunction of Australian Patent Law," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 20(2), pages 21-38.
    19. Bhaven N. Sampat, 2015. "Intellectual property rights and pharmaceuticals: The case of antibiotics," WIPO Economic Research Working Papers 26, World Intellectual Property Organization - Economics and Statistics Division.
    20. Manganelli, Anton-Giulio, 2023. "Pay-for-delay settlements and patent expansion practices," Information Economics and Policy, Elsevier, vol. 64(C).

    More about this item

    JEL classification:

    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:jecper:v:39:y:2025:i:2:p:27-52. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Michael P. Albert (email available below). General contact details of provider: https://edirc.repec.org/data/aeaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.