Dissertation Title: "Competition, Regulation, and Entry Timing in Markets for Pharmaceutical Line Extensions"
This dissertation consists of three chapters on competition, regulation, and entry in markets for pharmaceutical line extension. Pharmaceutical line extensions are new formulations of older, parent molecules. Line extensions are differentiated from both brand and generic versions of the original molecule formulation, and exclusivity periods for line extensions typically remain active after patents for the original formulation expire.
The first chapter estimates the market share that product lines with extensions are able to retain after patent expiration, and it investigates whether sales and prices of line extensions respond to competition from generic versions of the parent molecule. I show that line extensions retain significant sales relative to their unextended counterparts after generic entry. After generic entry, competition may occur between a line extension and a generic version of the original formulation (“cross-formulation”), or between a branded and generic version of the original drug (“within-formulation”). I find that competition from generic versions of the original formulation has little effect on sales for line extensions, and I estimate that the “cross-formulation” response to generic entry is only 22 to 34 percent as large as the “within-formulation” effect.
The second chapter demonstrates that the current approach to regulating pharmaceutical line extensions encourages firms to delay market entry and proposes an alternative, welfare increasing regulation. I show that untying the exclusivity period from the approval date would encourage firms to introduce line extensions as soon as possible and would allow regulators to reduce exclusivity periods for line extensions. I also consider how switching costs influence the firm’s entry decision and the duration of the optimal exclusivity period.
Chapter 3 of this dissertation investigates whether entry timing affects market shares for pharmaceutical line extensions after generic versions of the original formulation enter the market. I use variation in the duration of the FDA approval process to identify the effect of entry timing on line extension market shares. Using data from Medicaid State Drug Utilization files, I estimate that launching a line extension one month earlier is associated with a 0.6 to 0.8 percentage point increase in the average market share for line extensions in the two years following generic entry.