Regulation and welfare: evidence from paragraph IV generic entry in the pharmaceutical industry

Abstract

This article estimates welfare effects of accelerated generic entry via Paragraph IV challenges. Using data from 2000–2008 for hypertension drugs in the United States, we estimate demand using a random‐coefficients logit model. We find consumers gain $42 billion whereas producers lose $32.5 billion from entry. This modest $9.5 billion gain in social welfare is consistent with our observation that overall consumption does not increase after entry—generic sales displace branded sales, shifting surplus downstream from producers to consumers, insurance companies, and retailers. We demonstrate significant cross‐molecular substitution and discuss challenges in determining what fraction of downstream surplus actually goes to consumers.

The Welfare Impact of Parallel Imports: A Structural Approach Applied to the German Market for Oral Anti‐diabetics

“…Hence, to make a more precise assessment of the welfare implications of different policy interventions, our approach builds on recent developments in the empirical health economic literature that estimates structural models of demand and supply. The most recent studies in this strand of literature analyse the market entry of generic and ‘me‐too’ drugs in the USA ( Ching , ; Branstetter et al ; Arcidiacono et al ; Bokhari & Fournier , ). Almost all these papers show that the entry of generic drugs benefits consumers more than it harms the producers by decreasing prices of the former patented drug.…”

“…Almost all these papers show that the entry of generic drugs benefits consumers more than it harms the producers by decreasing prices of the former patented drug. Furthermore, there seems to exist substitutability not only across brand‐names and generics or ‘me‐toos’ of the same molecule but also among different molecules ( Branstetter et al ; Bokhari & Fournier , ). Because parallel imports are not allowed and patented drugs' prices are relatively high in the USA, comparisons to Europe are difficult.…”

Parallel trade of pharmaceuticals: The Danish market for statins

“…These estimates are in line with previous findings: Dunn () finds a price coefficient of −1.61 for anticholesterol drugs based on U.S. data covering the period 1996 to 2007. Similarly, Branstetter et al () obtain a price coefficient of −0.30 for the market of hypertension drugs in the United States between 1997 and 2008.…”

“…The empirical framework has two main components: demand estimation and supply estimation. The estimation draws on Berry (), Stern (), and Verboven () and contributes to a growing literature on structural estimation in the pharmaceutical industry, as seen in recent work by Branstetter, Chatterjee, and Higgins (), Ching (, ), Dubois and Lasio (), Dunn (), Dutta (), and Kaiser et al (). The first part of this paper specifies a discrete choice model to estimate consumer demand.…”

Intellectual Property Rights, Innovation and Development: Is Asia Different?

“…Stronger IPR can lead to higher prices for patent-protected goods, and that this can, in principle, generate short-run losses in consumer surplus, at least in a conventional and static sense (see Chaudhuri, Goldberg, & Jia, 2006; McCalman, 2001; Maskus, 2000 for early evidence on these points). On the other hand, the magnitude of these losses, at least in the critical domain of pharmaceuticals, has been brought into question by recent evidence (see Branstetter et al, 2016; Duggan et al, 2016 for more recent evidence). But this study will not focus on the relationship between patent strength and goods prices.…”