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Entry and competition in generic biologics

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  • 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)

Abstract

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.

Suggested Citation

  • Henry G. Grabowski & David B. Ridley & Kevin A. Schulman, 2007. "Entry and competition in generic biologics," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 439-451.
  • Handle: RePEc:wly:mgtdec:v:28:y:2007:i:4-5:p:439-451 DOI: 10.1002/mde.1352
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    References listed on IDEAS

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    1. 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.
    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, March.
    3. 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.
    4. Bresnahan, Timothy F & Reiss, Peter C, 1991. "Entry and Competition in Concentrated Markets," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 977-1009, October.
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    Cited by:

    1. María-Isabel Farfan-Portet & Sophie Gerkens & Isabelle Lepage-Nefkens & Irmgard Vinck & Frank Hulstaert, 2014. "Are biosimilars the next tool to guarantee cost-containment for pharmaceutical expenditures?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(3), pages 223-228, April.
    2. François Bocquet & Anaïs Loubière & Isabelle Fusier & Anne-Laure Cordonnier & Pascal Paubel, 2016. "Competition Between Biosimilars and Patented Biologics: Learning from European and Japanese Experience," PharmacoEconomics, Springer, vol. 34(11), pages 1173-1186, November.
    3. Arcidiacono, Peter & Ellickson, Paul B. & Landry, Peter & Ridley, David B., 2013. "Pharmaceutical followers," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 538-553.
    4. Bruce Rasmussen, 2010. "Innovation and Commercialisation in the Biopharmaceutical Industry," Books, Edward Elgar Publishing, number 13680, April.
    5. Jorge Mestre-Ferrandiz & Adrian Towse & Mikel Berdud, 2016. "Biosimilars: How Can Payers Get Long-Term Savings?," PharmacoEconomics, Springer, vol. 34(6), pages 609-616, June.
    6. Trusheim Mark R. & Aitken Murray L. & Berndt Ernst R., 2010. "Characterizing Markets for Biopharmaceutical Innovations: Do Biologics Differ from Small Molecules?," Forum for Health Economics & Policy, De Gruyter, vol. 13(1), pages 1-45, July.
    7. François Bocquet & Pascal Paubel & Isabelle Fusier & Anne-Laure Cordonnier & Claude Pen & Martine Sinègre, 2014. "Biosimilar Granulocyte Colony-Stimulating Factor Uptakes in the EU-5 Markets: A Descriptive Analysis," Applied Health Economics and Health Policy, Springer, vol. 12(3), pages 315-326, June.
    8. Mark Trusheim & Murray L. Aitken & Ernst R. Berndt, 2010. "Characterizing Markets for Biopharmaceutical Innovations: Do Biologics Differ from Small Molecules?," NBER Working Papers 16014, National Bureau of Economic Research, Inc.

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