Working Paper: NBER ID: w29131
Authors: Keith M. Drake; Robert He; Thomas McGuire; Alice K. Ndikumana
Abstract: After receiving FDA approval, a generic drug manufacturer can launch “at risk” before conclusion of any patent infringement litigation, but it risks paying damages if it loses. The generic can eliminate the risk by waiting to launch until the appeals process is complete but waiting has downsides too. We develop a model that implies that, after the generic has won a district court decision, at-risk entry is generally profitable and will occur quickly unless the cost of waiting for the appeal is very low. We examine generic drug applications that have received FDA approval with “first-filer” status (which precludes later filing generics from entering before the first filer). In our data, the generic and brand usually settled prior to the conclusion of litigation. For the remainder, drugs that received FDA approval prior to a favorable district court decision were always launched at risk. Generics without FDA approval before a favorable district court decision launched upon approval unless the approval was close in time to the appeal decision or it had forfeited the first filer exclusivity (indicating a low cost of waiting). We also consider implications of at-risk entry for social welfare, arguing that at-risk entry is analogous to a “buy out” of the patent with favorable welfare implications in both the short run (consumer prices) and long run (efficient incentives for R&D).
Keywords: generic drugs; FDA approval; at-risk entry; Hatch-Waxman Act; social welfare
JEL Codes: D22; I11; I18; O32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| favorable district court decision (K41) | at-risk entry (L26) |
| FDA approval (L65) | at-risk entry (L26) |
| favorable district court decision (K41) | timing of at-risk entry (C41) |
| FDA approval + favorable district court decision (L49) | at-risk entry (L26) |
| cost of waiting for appeal (K41) | timing of at-risk entry (C41) |