Brand Loyalty, Entry, and Price Competition in Pharmaceuticals after the 1984 Drug Act

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IN 1984, Congress enacted a new law that greatly affected the economics of the pharmaceutical industry in the United States. It has been characterized as the most important legislation affecting competition in the pharmaceutical industry since the 1962 Kefauver-Harris Amendments to the Food and Drug Act. This 1984 law, known as the Drug Price Competition and Patent Term Restoration Act (hereinafter the 1984 Act), facilitated the entry of generic drug products after patent expiration while it also restored part of the patent life lost during the premarket regulatory process for new introductions.1 Market entry by generics was relatively limited prior to 1984 because of costly Food and Drug Administration (FDA) requirements that had to be met by the imitative products. That is, generic drugs often would have to duplicate many of the pioneer's tests to gain market approval after patent expiration. As a result of the 1984 law, generic products need only demonstrate bioequivalence to the pioneer's brand, and generic entry has increased significantly. This has provided a body of very interesting data to analyze the pattern of entry and the pricing strategies followed by the entrants and incumbents. In this article, we make use of data covering the sales and prices of the pioneer and generic products for eighteen drug products, generally over the time period 1984-88.







Henry G. Grabowski

Professor Emeritus of Economics

Professor Grabowski specializes in the investigation of economics in the pharmaceutical industry, government regulation of business, and the economics of innovation. His specific interests within these fields include intellectual property and generic competition issues, the effects of government policy actions, and the costs and returns to pharmaceutical R&D. He has over one hundred peer reviewed articles analyzing the economics of pharmaceuticals and also several books and monograph publications. Professor Grabowski has testified several times before Congress on the issues of FDA regulation, health care reform, drug innovation and generic competition and vaccine policies. He has received numerous awards and professional recognition including a special issue of essays published in his honor in 2011 in the International Journal of the Economics of Business. He also has served as an advisor to various government and business organizations, including the National Academy of Sciences, the Institute of Medicine, the Office of Technology Assessment, the Federal Trade Commission, and the General Accounting Office. The US Congress has recognized the significant role that a paper he published with Duke colleagues David Ridley and Jeff Moe had in the passage of legislation that incentivized development of new therapies for neglected diseases through the creation of priority review vouchers.

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