Wednesday, January 30, 2019

Institutional Horizontal Shareholdings and Generic Entry in the Pharmaceutical Industry

Jin Xie, The Chinese University of Hong Kong (CUHK) and Joseph J. Gerakos, Tuck School of Business at Dartmouth College; Dartmouth College - Tuck School of Business Institutional identify Horizontal Shareholdings and Generic Entry in the Pharmaceutical Industry.

ABSTRACT: Brand-name pharmaceutical companies often file lawsuits against generic drug manufacturers that challenge the monopoly status of patent-protected drugs. Institutional horizontal shareholdings, measured by the weight of generic shareholders' ownership in the brand-name company relative to their ownership in the generic manufacturer, are significantly positively associated with the likelihood that the two parties will enter into a settlement agreement in which the brand pays the generic to stay out of the market. Horizontal shareholdings are also positively associated with the brand's daily abnormal returns around the settlement agreement. Generic manufacturers who settle with the brand-name company and receive a 180 day period of marketing exclusivity are more likely to delay the sale of generic substitutes if they have higher horizontal shareholdings with the brand-name firms. These delays preclude other generic firms from entering the market.

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