Pharmaceutical Lifecycle Extension Strategies - Innovation and Marketing in the Pharmaceutical Industry - page 235

on marketing in the fi rst 2 years after patent expiry is even lower. This decrease in
marketing expenditures is confi rmed by Huskamp et al. ( 2008 ) and Iizuka ( 2004 ).
The market size can also change due to generic entry. Gonzalez et al. ( 2008 )
investigate how doctors change their prescription behavior in a therapeutic category
when one of molecules (a branded drug) goes off patent. Due to the introduction of
generics, the average price of the molecule that loses its patent decreases. In line
with Caves et al. ( 1991 ) they fi nd that, despite the lower price for the molecule, total
prescriptions decrease as some doctors switch to other branded and more expensive
molecules.
The literature on generic entry has mainly investigated the US market as it is the
biggest and least regulated pharmaceutical market in the world. However, these
results are not directly generalizable to other countries due to differences in the
regulatory context. For example, many European countries have reference price sys-
tems, prohibiting branded drugs to increase prices after patent expiry. Hudson
( 2000 ) studies the impact of generic entry on sales in multiple countries. He con-
fi rms several results of earlier studies on US data and fi nds that, except for the U.K.
market size and the price of the branded drug increase the speed with which the
branded drug loses its market share. In addition, he fi nds that the impact of generics
is greater in the U.S. than in Germany, the U.K., and Japan. This can either be due
to the US regulations or because the United States has the biggest market size
among these countries. Lexchin ( 2004 ) analyzes price changes of branded drugs
after patent expiry in Canada and fi nds no signifi cant changes. Aronsson et al.
( 2001 ) fi nd for the Swedish pharmaceutical market that lower generic prices sub-
stantially decrease branded market share.

8.2.3 Summary of Generic Entry

The impact of generic entry on branded sales has substantially increased in the
United States after the passage of the 1984 Hatch-Waxman Act. As generic drugs
are a commodity, the main determinant of their impact is the number of generic
entrants, which in turn decreases the generic price. This is mainly driven by market
size, but pre-patent expiry advertising and the ease of manufacturing also infl uence
the number of generic entrants. The generic share increases in the extent of HMO
coverage and is larger in hospital markets. Generic entry decreases overall market
size for that molecule due to a substantial decrease in marketing.
Hence, the number of entrants largely determines the generic price, but the litera-
ture is not converged on the effect of generic entry on branded prices. While most
studies fi nd that branded prices increase (e.g., Berndt et al. 2003 ; Grabowski and
Vernon 1992 ; Regan 2008 ), some studies fi nd decreasing prices after generic entry
(e.g., Caves et al. 1991 ; Wiggins and Maness 2004 ). These differences warrant a
large-scale study analyzing price changes of branded drugs after patent expiry. It is
valuable to explore the product and market moderators that explain the changes in
branded prices after patent expiry.