MarketWatch: Authorized generic drugs, price competition, and consumers' welfare

Health Affairs

Volumn 26, Issue 3, 2007, Pages 790-799

  Berndt, Ernst R ^a   Mortimer, Richard ^b   Bhattacharjya, Ashoke ^c   Parece, Andrew ^b   Tuttle, Edward ^d  

^a NATIONAL BUREAU OF ECONOMIC RESEARCH   (United States)

^b ANALYSIS GROUP   (United States)

^c Johnson and Johnson Medical Asia Pacific   (India)

^d ANALYSIS GROUP   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

CIPROFLOXACIN; DRUG DERIVATIVE; ETHINYLESTRADIOL; GENERIC DRUG; NORGESTREL; PAROXETINE; TRI CYCLEN; TRI-CYCLEN; UNCLASSIFIED DRUG;

CONSUMER; DRUG APPROVAL; ECONOMICS; FEE; FINANCIAL MANAGEMENT; HUMAN; METHODOLOGY; REVIEW; STATISTICS; UNITED STATES;

CIPROFLOXACIN; CONSUMER SATISFACTION; DRUG APPROVAL; DRUGS, GENERIC; ETHINYL ESTRADIOL; FEES, PHARMACEUTICAL; HUMANS; MARKETING OF HEALTH SERVICES; NORGESTREL; PAROXETINE; UNITED STATES;

EID: 34248572470     PISSN: 02782715     EISSN: 02782715     Source Type: Journal    
DOI: 10.1377/hlthaff.26.3.790     Document Type: Article

References (40)

1. Authorized generic drugs may be produced and sold by the brand manufacturer (perhaps through a subsidiary) or through a licensing agreement with another company that independently distributes and prices the product.
2. Federal Trade Commission, Generic Drug Entry Prior to Patent Expiration: An FTC Study, July 2002, http://www.ftc.gov/os/2002/07/ genericdrugstudy.pdf (accessed 7 October 2005).
3. Ibid.
4. An "independent" generic entrant is a generic entrant whose ability to be sold derives from its FDA-approved ANDA.
5. FDA, "Guidance for Industry," June 1998, http://www.fda.gov/ cder/guidance/2576fnl.pdf;
6. March 2000, http://www.fda.gov/cder/guidance/3659fnl .pdf;
7. and July 2003, http://www.fda.gov/cder/ guidance/5710fnl.pdf (accessed 18 August 2006).
8. M. Freudenheim, "All about Generic Pharmaceuticals; Now the Big Drug Makers Are Imitating Their Imitators," New York Times, 20 September 1992.
9. Mylan Laboratories, Form 8-K, Citizen Petition, pp. 13-17, 30 June 2004, http://ccbn.10Kwizard.com/xml/download.php?format=pdf&ipage= 2869681 (accessed 16 March 2007).
10. M. Sipkof, "Battle over Authorized Generics Grows Increasingly Heated," Drug Topics, 1 April 2005, http://www.drugtopics.com/ drugtopics/article/articleDetail.jsp?id=152726 (accessed 14 September 2005).
11. U.S. Department of Health and Human Services, Docket nos. 2004P-0075/CP1 and 2004P-0261/CP1, 2 July 2004, http://www.fda.gov/ohrms/dockets/dailys/04/ july04/070704/04p-0075-pdn0001.pdf (accessed 24 August 2005).
12. See, for example, Teva Pharmaceutical Industries v. FDA, no. 05-5004, U.S. Court of Appeals, D.C. Circuit, 3 June 2005.
13. See S. 3695, 109th Cong., 2d sess. (19 July 2006).
14. D. Reiffen and M.R. Ward, "'Branded Generics' as a Strategy to Limit Cannibalization of Pharmaceutical Markets,"Working Paper, May 2005, http://www.uta.edu/faculty/mikeward/brandedgenerics.pdf (accessed 7 October 2005).
15. See Pharmaceutical Research and Manufacturers of America, "Authorized Generics Can Lead to Lower Drug Prices," Press Release, 20 July 2006, http://www.phrma.org/news_room/press_releases/authorized generics_can_lead_to_lower_drug_prices (accessed 6 February 2007).
16. Here we consider a single authorized generic entry, although in principle there could be more.
17. FDA, "Guidance for Industry," June 1998, March 2000, and July 2003.
18. Grabowski suggests that generic firms are prospecting in patent challenges for very large payoffs from 180-day exclusivity periods should they be successful. H. Grabowski, "Competition between Generic and Branded Drugs" (Unpublished paper, Duke University, May 2005).
19. FTC, Generic Drug Entry. Of the remaining thirty-one resolutions, in two cases the patent expired prior to a litigation resolution; in twenty, the litigation was settled; in eight, the brand-name company won the litigation; and in one, the NDA was withdrawn before litigation was resolved. Unlike the twenty-two case decisions resulting in a win for the generic, most of the settlements instituted delays to generic entry.
20. See J. Farrell and C. Sharpiro, "How Strong Are Weak Patents?" Working Paper, January 2007, http://faculty.haas.berkeley.edu/shapiro/weak.pdf (accessed 6 February 2007).
21. D. Reiffen and M.R. Ward, "Generic Drug Industry Dynamics," Review of Economics and Statistics 87, no. 1 (2005): 37-49.
22. See, for example, R. Caves, M. Whinston, and M. Hurwitz, "Patent Expiration, Entry, and Competition in the U.S. Pharmaceutical Industry," Brookings Papers on Economic Activity: Microeconomics (1991): 1-67;
23. Congressional Budget Office, How Increased Competition from Generic Drugs Has Affected Prices and Returns in the Pharmaceutical Industry (Washington: U.S. Government Printing Office, July 1998);
24. and F.M. Scott-Morton, "Barriers to Entry, Brand Advertising, and Generic Entry in the U.S. Pharmaceutical Industry," International Journal of Industrial Organization 18, no. 7 (2000): 1086-1104.
25. Using revenue divided by quantity as a measure of average price, Reiffen and Ward found no statistically significant effect of additional generic entrants on the generic-to-brand price ratio following the sixth generic entrant. Reiffen and Ward, "Generic Drug Industry Dynamics."
26. For a description of the data used here, see our Online Supplement at http://content.healthaffairs.org/cgi/content/full/26/3/790/DC1.
27. Bresnahan and Reiss found that in a number of markets, it only takes three or four entrants to approximate competitive conditions. T. Bresnahan and P. Reiss, "Entry and Competition in Concentrated Markets," Journal of Political Economy 95, no. 5 (1991): 977-1009.
28. A.Hollis, "The Anticompetitive Effects of Brand-Controlled 'Pseudo-Generics' in the Canadian Pharmaceutical Market," Canadian Public Policy 29, no. 1 (2003): 21-31.
29. Reiffen and Ward cite a cost of $475 thousand in late 1980s/early 1990s dollars. Reiffen and Ward, "'Branded Generics'." Hollis cites a cost of roughly $1 million Canadian.
30. Generic manufacturers' legal costs of defending a challenged paragraph IV certification may be offset by countersuit litigation. For example, Mylan received a $15 million settlement of allegations that the brand manufacturer violated antitrust laws by suing Mylan for alleged infringement of a patent on the drug mirtazapine. Mylan Laboratories, Form10-K (2004), 63.
31. Razadyne recently experienced paragraph IV certifications filed by at least seven generic manufacturers. Par Pharmaceuticals, Form 10-K (2006).
32. The effect on the timing of generic entry will depend on the respective ANDA filing dates, time to approval, and the time to any relevant court decisions for the independent generic manufacturer that was deterred from entering compared to the one that was not deterred from entering and is the first filer.
33. Calculated using FDA data on the date of the first ANDA filing with a paragraph IV certification for drugs experiencing these filings between March 2004 and May 2006. FDA, "Paragraph IV Patent Certifications as of January 18, 2007," http://www.fda.gov/cder/ogd/ppiv.htm (accessed 6 February 2007). Dates determined by data availability.
34. Using FDA data on new molecular entity (NME) approvals, and assuming an average twelve-year time span between NME approval and initial generic entry, we calculated the stock of drugs potentially facing paragraph IV challenges as the total number of NME approvals between the previous four and twelve years (for example, the 2004 stock is the sum of NME approvals between 1992 and 2000). Results were similar when ten- and fourteen-year time spans were employed instead of twelve.
35. Launch of an independent generic version of Allegra might have been accelerated to preempt potential authorized generic entry. See FDA, "Teva Launches Generic Allegra 'At Risk' under Barr's Exclusivity," Pink Sheet 67, no. 37 (2005): 17.
36. In the third (sixth) month following initial generic entry, the average generic-to-brand price ratio for drugs with successful paragraph IV certifications was 0.74 (0.64), compared with an average of 0.52 (0.47) for drugs without successful certifications; the null hypothesis of no difference between these price ratios is rejected, p = 0.02 (marginally rejected, p = 0.09).
37. The null hypothesis of no difference between these price ratios is not rejected (p = 0.90).
38. The null hypothesis of no difference between the median (not mean) price ratios is also not rejected (p = 0.66). Similarly, the null hypothesis of no difference between the median generic shares is not rejected (p = 0.66).
39. Ortho Tri-Cyclen is a combination of three molecules and does not have a single generic molecular name.
40. Further data details are available in the online supplement; see Note 22.