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Entry and competition in generic biologics

  • Henry G. Grabowski

    (Health Sector Management Program, The Fuqua School of Business, Duke University, NC, USA)

  • David B. Ridley

    (Health Sector Management Program, The Fuqua School of Business, Duke University, NC, USA)

  • Kevin A. Schulman

    (Health Sector Management Program, The Fuqua School of Business, Duke University, NC, USA)

Patents for several blockbuster biological products are expected to expire soon. The Food and Drug Administration is examining whether biologics can and should be treated like pharmaceuticals with regard to generics. In contrast with pharmaceuticals, which are manufactured through chemical synthesis, biologics are manufactured through fermentation, a process that is more variable and costly. Regulators might require extensive clinical testing of generic biologics to demonstrate equivalence to the branded product. The focus of the debate on generic biologics has been on legal and health concerns, but there are important economic implications. We combine a theoretical model of generic biologics with regression estimates from generic pharmaceuticals to estimate market entry and prices in the generic biologic market. We find that generic biologics will have high fixed costs from clinical testing and from manufacturing, so there will be less entry than would be expected for generic pharmaceuticals. With fewer generic competitors, generic biologics will be relatively close in price to branded biologics. Policy makers should be prudent in estimating financial benefits of generic biologics for consumers and payers. We also examine possible government strategies to promote generic competition. Copyright © 2007 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1352
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Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 28 (2007)
Issue (Month): 4-5 ()
Pages: 439-451

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Handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:439-451
Contact details of provider: Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Bresnahan, T.F & Reiss, P.C., 1989. "Entry And Competition In Concentrated Markets," Papers 151, Stanford - Studies in Industry Economics.
  2. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, 03.
  3. Z. John Lu & William S. Comanor, 1998. "Strategic Pricing Of New Pharmaceuticals," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 108-118, February.
  4. Bhattacharya, Jayanta & Vogt, William B, 2003. "A Simple Model of Pharmaceutical Price Dynamics," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 599-626, October.
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