The ‘Generic Competition Paradox’ Revisited

Abstract

Using a panel dataset of 78 branded drugs for the period January 2009 through March 2020, we examine whether brand prices react to the onset of generic competition. Contrary to the findings of several prior academic studies, we show that the rate of change of brand prices (both nominal and CPI-deflated) are significantly lower after generics enter the market; notably, we also find branded drug manufacturers raise their prices in the six-month period just before generic entry and lower them in the six-month period after, with the differences in the rates of change being highly significant. We also show in markets with an authorized generic and in ones with large pre-entry brand sales, manufacturers raise prices at a higher (or decrease CPI-deflated prices at a shallower) rate.

Keywords:

• Brand price
• generic entry
• generic competition paradox

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 However, as a robustness check, we have also examined whether the key results of the paper hold, if we did not treat multiple forms as separate ‘drugs.’ All the principal findings of our paper stay unchanged when we use the dataset of 71 branded drugs, i.e., distinct molecules. For example, we find that, on average, brands increase nominal prices at an annualized rate of 9.9% in the pre-entry period and at 4.4% in the period after generic entry.

2 ‘The statute provides that the first applicant to file a substantially complete ANDA containing a paragraph IV certification to a listed patent will be eligible for a 180-day period of exclusivity beginning either from the date it begins commercial marketing of the generic drug product, or from the date of a court decision finding the patent invalid, unenforceable or not infringed, whichever is first’. The Food and Drug Administration website.

3 This is verified by estimating two separate regressions (Model 1B) using: (a) data for the subset of drugs with AG; and (b) data for the subset of drugs whose pre-entry brand market size is larger than the median market size. These results are available from the authors.