Facts Concerning Competition in Generic Drug Markets

Monday, June 24, 2019: 8:45 AM
Coolidge - Mezzanine Level (Marriott Wardman Park Hotel)

Presenter: Rena Conti

Co-Author: Ernst Berndt

Discussant: Chris Stomberg

We establish several facts concerning limited supplier competition and its implications for market performance among all prescription drugs that experienced loss of patent exclusivity (LOE) between 2009 and 2012, using IQVIA’s National Sales Perspective™ 2007Q1 – 2016Q3 data. We define a unique product market consisting of the combination of a molecule active ingredient and a route of administration formulation (a unique “molform”), aggregating over different dosages, generally consistent with Federal Trade Commission practice. We follow 160 unique molforms 8 quarter-years before LOE through 15 quarter-years after LOE. Dates of LOE for each molform are defined in the data and double-checked using numerous public records. The 64 drug suppliers are defined as 'labellers' according to FDA terminology.

In terms of supply, we find: (i) 75% of drugs experienced entry 15 quarters post-LOE; (ii) The mean number of generic supplier entrants was 6, the mean number of exits was 1.4; We observed fewer average number of supplier entrants, but similar average numbers of exits among non-oral drugs; (iii) Supplier entrants are multiproduct firms, largely making generic drugs exhibiting low average revenue per drug ($558M); (iv) Drugs with no entry were largely non-oral exhibiting relatively low quarterly revenue before LOE compared to drugs experiencing entry ($28M vs. $168M); (v) Incumbent suppliers of no entry drugs are multiproduct firms making branded & generic drugs and exhibiting relatively high average mean revenue per drug ($1505M); (vi) Exiting firms are multiproduct making largely generic drugs exhibiting average revenue per drug pre-exit ($333M) and surprisingly high mean volume share (72%).

In terms of market performance, we find: (i) Mean sales volume appears to be stable post-LOE for oral drugs; non-oral drugs sales volume increases, sometimes substantially, post-LOE; (ii) Generics gain substantial market share post-LOE (>90%) among orals; much less generic market share (80%) among non-orals post-LOE. Brands are observed to gain market share over time among a subset of non-orals; (iii) While prices decline post-LOE among orals; prices do not decline as much and are observed to increase among non-orals post-LOE. While previous publications suggest strong entry patterns, expanded use and robust price competition among oral generic drugs post-LOE, results of our study suggest these stylized facts do not fit drugs undergoing LOE in recent years, most notably among non-orals. These facts concerning generic product market competition and market performance provide an empirical platform on which to construct and empirically evaluate hypotheses determining these observed patterns and the impact of possible policy reforms.