Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, June 1, 2011

Evergreening, Patent Challenges, and Effective Market Life in Pharmaceuticals

Posted by D. Daniel Sokol

C. Scott Hemphill, Columbia University - Law School and Bhaven N. Sampat, Columbia University - Mailman School of Public Health analyze Evergreening, Patent Challenges, and Effective Market Life in Pharmaceuticals.

ABSTRACT: The Hatch-Waxman Act permits a generic drug maker to enter the market for a patented drug, prior to patent expiration, by asserting that one or more patents are invalid or not infringed. Observers worry that generic patent challenges are on the rise, increasingly come early after branded drug approval, and reduce the effective market life of drugs. A particular concern is that challenges disproportionately target high-sales drugs, reducing market life for these “blockbusters.” To study this question, we examine a new dataset of all new molecular entities for which first generic approval occurred between 2001 and 2010. Our results show that challenges are much more common for higher sales drugs. We also demonstrate a slight increase in challenges over this period, and a sharper increase for early challenges (those commencing within five years of drug approval). Despite this, effective market life is stable across drug sales categories, and has hardly changed over the decade. To help understand this surprising result, we examine a second new dataset identifying which patents are challenged on each drug. Exploiting within-drug variation in patent type and expiration date, we find that lower quality and later expiring patents disproportionately draw the challenges. Taken together, this evidence suggests that patent challenges serve to maintain, rather than reduce, the historical baseline of effective market life, by responding to and reducing the effectiveness of evergreening by branded drug makers.

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