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Antitrust in the Pharmaceutical Industry:
An Introduction to Brand-Generic Competition
Scott Hemphill
New York State Office of the Attorney General
George Mason University
May 3, 2012
GENERIC ENTRY LOWERS PRICES
Dollars per Extended Unit
Average price of fluoxetine before and after generic entry
Source: Frank and Hartman (2009)
EVEN WITH A CHALLENGE, BRAND-NAME DRUGS ENJOY SUBSTANTIAL EXCLUSIVITY
Effective market life and nominal patent term by drug,
for drugs with challenges
Source: Hemphill and Sampat, Evergreening, Patent Challenges, and Effective Market Life in Pharmaceuticals, Journal of Health Economics (2012)
Note: NMEs with first generic entry 2001-2010
LITIGATION OUTCOMES VARY BY PATENT TYPE
Outcome by patent type
Brand
wins
Generic
wins
Active ingredient
(AI) patent
34
5
Non-AI patent
34
57
Source: Hemphill, Sampat and Tilipman (working paper 2012)
Notes: drugs first eligible for challenge 2000-2010; excludes pending cases
PAYMENT ALTERS THE SETTLEMENT BARGAIN
Litigation ends
Litigation
Patent expires
brand
+ generic
brand
only
Entry
Settlement
brand only
brand + generic
$
$$
$$$
Source: Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, NYU Law Review (2006)
FOR WEAK PATENTS, THE PAY-FOR-DELAY INCENTIVE IS STRONGER
Outcome by patent type
Brand
wins
Generic
wins
Settles
Active ingredient
(AI) patent
34
5
28
[40%]
Non-AI patent
34
57
133
[60%]
Source: Hemphill, Sampat and Tilipman (working paper 2012)
Notes: drugs first eligible for challenge 2000-2010; excludes pending cases
FOR WEAK PATENTS, THE PAY-FOR-DELAY INCENTIVE IS STRONGER
Source: Hemphill, Sampat and Tilipman (working paper 2012)
Notes: drugs first eligible for challenge 2000-2010; excludes pending cases
SETTLEMENT WITH “RETAINED EXCLUSIVITY” PRESENTS A FURTHER HARM
Litigation
Settlement
Competition
brand only
brand + generic
Source: Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, NYU Law Review (2006)
CONCLUSIONS
Generic challenges shorten brand exclusivity, but only somewhat
Patent type matters: “non-AI” patents are where the action is
The 180-day bounty matters: its effect on incentives is central
to any realistic theory of settlement