Research Highlights Featured Chart

April 2, 2026

Shareholder overlap and drug market competition

Common ownership between brand and generic pharmaceutical firms significantly reduces generic entry.

Tyler Smith

Source: gogian

When the patent expires on a brand-name drug, generic manufacturers are legally permitted to enter the market with cheaper, bioequivalent alternatives. This process is crucial to containing healthcare costs, with generic entry reducing brand revenues by as much as 90 percent. 

In a paper in the American Economic Journal: Microeconomics, authors Melissa Newham, Jo Seldeslachts, and Albert Banal-Estañol provide evidence that this competitive process is being undermined by a structural feature of modern financial markets known as common ownership.

Common ownership arises when the same institutional investors hold significant stakes in firms that would otherwise compete against each other. In the pharmaceutical industry, this pattern is widespread. BlackRock, Vanguard, and State Street—three of the world's largest asset managers—are among the top five shareholders of both Johnson & Johnson, a major pharmaceutical brand firm, and Mylan, a major generic producer. When a generic firm's largest shareholders also own substantial stakes in the brand firm, those shareholders stand to lose financially from generic entry, potentially undermining incentives to compete.

Using FDA drug approval data and ownership records covering 395 drug markets that faced generic entry or patent expiry between 2004 and 2014, the authors estimated the effects of common ownership on generic entry. Figure 5 from the paper displays their main findings.

Figure 5 from Newham et al. (2025)

The chart shows the predicted number of generic entrants within two years of patent expiry against the authors’ preferred measure of common ownership, keeping all else constant. The grey shaded band represents a 95 percent confidence interval.

The relationship between common ownership and entry is significantly negative. When common ownership is at its minimum value of zero, the predicted number of entrants is approximately 2.8 within two years. As the common ownership measure rises to its observed maximum of 0.3, the predicted count falls to approximately 1.6. This represents a reduction of nearly 50 percent in the expected number of competitors entering the market.

Overall, a one standard deviation increase in common ownership between a given generic firm and an incumbent brand reduces the probability of that generic entering the market by roughly 15 percent.

The authors’ findings contribute to a growing literature on the competitive consequences of institutional investor diversification and raise important questions for antitrust regulators evaluating ownership structures in the pharmaceutical sector.