Competition in Pharmaceutical Markets
Paper Session
Sunday, Jan. 9, 2022 10:00 AM - 12:00 PM (EST)
- Chair: Alan Sorensen, University of Wisconsin
Biosimilar Entry and the Pricing of Biologic Drugs
Abstract
Biosimilars are close copies of biologic drugs, a group of complex pharmaceutical products that cannot be exactly replicated. The United States Congress passed regulation promoting biosimilar entry in 2010. Since then, the FDA has approved more than 30 biosimilars. We study how the entry of biosimilars has affected price, volume sold, and formulary placement of their corresponding reference biologic drugs. We find that reference biologics react to biosimilar entry much more aggressively than small-molecule brand drugs do to generic entry. We use a simple model to argue that differences in the perceived quality of biosimilar products can explain this discrepancy, and show empirical evidence in support of our theory. The model and empirical results suggest that biosimilars could eventually replace originator biologics, similar to how generic drugs replace brand products, provided that future research confirms the current medical evidence on biosimilars' safety and efficacy.Bargaining and International Reference Pricing in the Pharmaceutical Industry
Abstract
The United States spends twice as much per person on pharmaceuticals as European countries, in large part because prices are higher in the US. This fact has led policymakers in the US to consider legislation for price controls. This paper assesses the effects of a hypothetical US reference pricing policy that would cap prices in US markets by those offered in Canada. We estimate a structural model of demand and supply for pharmaceuticals in the US and Canada, in which Canadian prices are set through a negotiation process between pharmaceutical companies and the Canadian government. We then simulate the impacts of the counterfactual international reference pricing rule, allowing firms to internalize the cross-country impacts of their prices both when setting prices in the US and when negotiating prices in Canada. We find that such a policy results in a slight decrease in US prices and a substantial increase in Canadian prices. The magnitude of these effects depends on the particular structure of the policy. Overall, we find modest consumer welfare gains in the US but substantial consumer welfare losses in Canada. Moreover, we find that pharmaceutical profits increase in net, suggesting that reference pricing of this form would constitute a net transfer from consumers to firms.Does Market Exclusivity Improve Access to Drugs? The Case of United States Anti-Ulcer Drug Market
Abstract
Over-the-counter (OTC) versions of prescription drugs can improve access and affordability, and potentially reduce spending on healthcare. To incentivize firms to conduct the R & D process required for converting prescription (Rx) drugs to OTC status, the first firm to gain approval for OTC sales of a prescription (Rx) drug enjoys three years of market exclusivity granted by the Food and Drug Administration (FDA), independent of patents. Firms usually, but not always, delay OTC entry until the end of their Rx patent protection. Using US anti-ulcer drug market as a case study, this paper shows that the FDA provision of market exclusivity, intended to encourage innovation and increase the number of OTC drugs, actually hurts consumers by delaying OTC entry until an Rx drug patent expires. We propose an alternative policy in which market exclusivity is preserved after patent expiration to an OTC drug that is introduced more than three years earlier than patent expiration, and find that the policy eliminates the incentive of strategic delay, and enhances consumer welfare.Discussant(s)
Ashley Swanson
,
Columbia University
Viola Chen
,
Federal Trade Commission
Alexander Olssen
,
University of Pennsylvania
Rena Conti
,
Boston University
JEL Classifications
- L1 - Market Structure, Firm Strategy, and Market Performance
- L4 - Antitrust Issues and Policies