Biomedical Engineering Reference
In-Depth Information
Hurwitz and Caves (
1988
) investigate the impact of generic entry on the market
share of the branded drug. They fi nd for a sample of 29 drugs, expiring between
1978 and 1983 (before the Hatch-Waxman Act), that the share of the branded drug
after generic entry is proportional to the time of that drug on the market (goodwill
stock) and its promotion. The goodwill and promotion are less effective for hospital
markets than pharmacy markets.
Caves et al. (
1991
) provide a descriptive analysis of the impact of generic entry
in the United States for 30 drugs. They investigate the speed and fullness with
which generic entry erodes the sales of the branded drug losing its patent. They
analyze the period 1976-1987 and hence most patents in their sample expired
before the Waxman-Hatch Act. They fi nd a small decrease of the branded drug's
price as the number of generic entrants increases. The price of generics decreases
with the number of generic competitors. The total generic share increases with the
number of generic drugs available, but remains relatively small. They fi nd that
when the generic price is about half of the branded price, generics attain a 25 %
market share 5 years after patent expiry.
Grabowski and Vernon (
1992
) analyze prices and market shares of 18 high-sales
drugs facing their fi rst generic competition between 1984 and 1987, after the
Waxman-Hatch Act. They fi nd that overall market prices decline sharply in the fi rst
2 years after patent expiry. During that period branded prices increase by 11 % (see
also Berndt et al.
2003
), exceeding infl ation. Generic prices are substantially lower
and keep decreasing with additional generic entrants. Two years after patent expiry,
the average generic share is 49 %.
Wiggins and Maness (
2004
) fi nd that generic and branded prices decrease in the
number of entrants. They test this for a single therapeutic category (anti-infectives)
and argue that this focus allows them to control for cost and demand differences
across therapeutic categories. However, their results may partly be driven by the
characteristics of the therapeutic class under consideration.
Reiffen and Ward (
2005
) investigate generic prices in reaction to generic entry
using a structural model. Based on 31 drugs facing generic entry, they fi nd that the
number of generic entrants and the speed of generic entry increases with market
size. They report that the price for the fi rst generic is 20-30 % above long-term
marginal costs, but generic prices begin to approach marginal costs when ten or
more generic competitors have entered.
Saha et al. (
2006
) empirically investigate for 40 drugs the interactions among
generic entry, prices, and market shares. They claim to be the fi rst to analyze these
three variables using a simultaneous estimation procedure to address the endogene-
ity between them. The price and share of generics are simultaneously determined.
The number of generic entrants is a key determinant of generic market share and the
generic-to-brand price ratio. They also fi nd that the extent of HMO coverage
increases generic market share.
Another reason for the decreasing market share of the branded drug is that its
promotional expenditures decrease substantially around patent expiry (Caves et al.
1991
). Berndt et al. (
2003
) investigate the marketing expenditures of branded drugs
around patent expiry. They fi nd for four H
2
-antagonist drugs that marketing expen-
ditures between 24 and 1 months before patent expiration are 20-59 % lower than
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