Generic Entry and Lack of Entry in Prescription Markets: Comparing Topical Drug Products to Non-Topical Drug Products
Discussant: David B. Ridley
Analyzing different stages of patent protection reveals important differences. Before expiration of patents, entry can occur if generic applicants challenge some patents or design around other patents. During this stage, probit regressions show that topicals are about 23 percent less likely to experience generic entry than non-topicals. After patents expire, topicals are about 7 percent less likely to experience generic entry than non-topicals. Focusing on timing of generic entry, topical markets show on average about three more years of monopoly duration than non-topical markets with generic entry. In addition, the number of generic entrants in topical markets is less than three entrants at five years after the initial generic entry. By comparison, non-topical markets have, on average, between three and four generic entrants within the first year of entry. Additional statistics show that, on average, topical markets’ median peak sales are about half compared to non-topical drugs. However, in probit models, sales explain only about 6 percent of the generic entry probability, suggesting there are other factors affecting generic entry. This paper explores some of these other factors, which include guidances for generic applications and generic firms’ opportunity costs.