Antitrust in the Pharmaceutical Industry: An Introduction to Brand-Generic Competition

Scott HemphillNew York State Office of the Attorney General

George Mason UniversityMay 3, 2012

Source: Frank and Hartman (2009)

Dol

lars

per

Ext

ende

d U

nit

Average price of fluoxetine before and after generic entry

GENERIC ENTRY LOWERS PRICES

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

EVEN WITH A CHALLENGE, BRAND-NAME DRUGS ENJOY SUBSTANTIAL EXCLUSIVITY

Brand wins

34Active ingredient (AI) patent

34Non-AI patent

Outcome by patent type

Generic wins

5

57

Source: Hemphill, Sampat and Tilipman (working paper 2012)Notes: drugs first eligible for challenge 2000-2010; excludes pending cases

LITIGATION OUTCOMES VARY BY PATENT TYPE

brand only brand + generic

Entry

Patent expiresLitigation ends

brand + genericbrand onlyLitigation

Settlement

PAYMENT ALTERS THE SETTLEMENT BARGAIN

$

$$

$$$

Source: Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, NYU Law Review (2006)

Brand wins

34Active ingredient (AI) patent

34Non-AI patent

Outcome by patent type

Generic wins

5

57

Settles

28[40%]

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

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

brand only brand + generic

CompetitionLitigation

Settlement

Source: Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, NYU Law Review (2006)

SETTLEMENT WITH “RETAINED EXCLUSIVITY” PRESENTS A FURTHER HARM

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