Biomedical Engineering Reference
In-Depth Information
available. They report substantial heterogeneity across doctors in the frequency of
branded vs. generic prescriptions.
The impact of patent expiry in the pharmaceutical industry is widely investi-
gated. Regulations play an important role in the outcomes of patent expiry and in
the U.S. the Hatch-Waxman Act in 1984 has changed the dynamics after patent
expiry substantially. See for a comprehensive study on patent expiry before the
Hatch-Waxman Act (Statman and Tyebjee
1981
). Below, I focus mainly on patent
expiry and generic entry after the Hatch-Waxman Act. Table
8.2
gives an overview
of the empirical studies into patent expiry. I start by describing the characteristics of
generic entry, followed by the consequences of generic entry.
8.2.1
Determinants of Generic Entry
The time until generic entry is uncertain, because the approval time of an ANDA is
uncertain. Branded manufacturers also do not know the exact patent expiry date, as
patents can be challenged before the original patent expiry date. Generics entering
the market are often considered a commodity, with little differentiation between
them. Hence, the number of generic entrants largely determines their price, with
more entrants implying a lower price.
The extent and speed of generic entry after patent expiry differ across products
and markets. Scott Morton (
2000
) fi nds that the most important factor determining
the number of generic entrants is the revenue of the branded drug before patent
expiry (see also Grabowski and Vernon
1992
; Hurwitz and Caves
1988
; Saha et al.
2006
). Sometimes a drug is in a niche category and no generic enters, e.g., between
1987 and 1993, 40 % of the drugs faced no generic competition within 2 years after
patent expiry (Bae
1997
). Hurwitz and Caves (
1988
) also fi nd that branded drugs
with a longer market exclusivity period and higher pre-patent expiry promotional
expenditures face fewer generic entrants.
Hudson (
2000
) investigates the impact of generic entry in four different coun-
tries: the U.S., the U.K., Germany and Japan. He largely confi rms the fi ndings of
earlier studies based on US data and fi nds that larger markets face more generic
entrants and faster generic entry.
Grabowski and Kyle (
2007
) fi nd in a recent large-scale study, based on 251 drugs
that lost their patent between 1995 and 2005, that drugs face generic entry more
often over time and that more successful drugs face more generic entrants and a
smaller market exclusivity period.
8.2.2
Consequences of Generic Entry
Generic entry has a large impact on the market. It leads to drastic changes in the
average price of a molecule as cheap generics enter and the demand for the branded
drug largely shifts to generics. Below, I discuss the consequences of generic entry and
also discuss how it infl uences the promotional expenditures and total market size.
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