Paper #1014

Title:

Generic entry into a regulated pharmaceutical market

Authors:

Iván Moreno Torres, Jaume Puig and Joan-Ramon Borrell-Arqué

Date:

February 2007

Abstract:

The aim of this paper is to analyse empirically entry decisions by generic firms into markets with tough regulation. Generic drugs might be a key driver of competition and cost containment in pharmaceutical markets. The dynamics of reforms of patents and pricing across drug markets in Spain are useful to identify the impact of regulations on generic entry. Estimates from a count data model using a panel of 86 active ingredients during the 1999–2005 period show that the drivers of generic entry in markets with price regulations are similar to less regulated markets: generic firms entries are positively affected by the market size and time trend, and negatively affected by the number of incumbent laboratories and the number of substitutes active ingredients. We also find that contrary to what policy makers expected, the system of reference pricing restrains considerably the generic entry. Short run brand name drug price reductions are obtained by governments at the cost of long run benefits from fostering generic entry and post-patent competition into the markets.

Keywords:

Entry, Generic Drugs, Pharmaceutical industry, Reference pricing

JEL codes:

I11, L11, L65

CRES Series number:

52

Download the paper in PDF format