Once a Drug Goes Generic, “Me Too” Drugs Take Its Place

We find that utilization of drug molecules starts decreasing in the two years prior to generic entry and continues to decrease in the years following generic entry, despite decreases in prices offered by generic versions of a drug. This decrease coincides with the market entry and increased utilization of branded reformulations of a drug going off patent. We show case study evidence that utilization patterns coincide with changes in marketing by branded drug manufacturers. While the reformulations—often extended-release versions of the patent-expiring drug—offer potential health benefits, the FDA does not require evidence that the reformulations are improvements over the previous drug in order to grant a patent. Indeed, in a number of experiments comparing the efficacies of the patent-expiring and reformulated drugs do not find statistical differences in health outcomes calling into question the patent-extension policy.

See full NBER study.

Comments (4)

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  1. Devon Herrick says:

    I think this is slowely changing. Recent surveys show nearly 80% of prescriptions filled today are generic drugs. Between 2011 and 2015 drugs with more than $100 billion in annual sales will lose patent protection.

  2. Tom H. says:

    This says to me that the market isn’t working very well.

  3. Vicki says:

    I agree with Tom. This is not how markets are supposed to work.

  4. Linda Gorman says:

    So demand shifts from a drug in its less expensive formulation, requiring three times a day dosing, to a more expensive version requiring only once a day dosing and people scream market failure?

    It is pretty clear that extended-release versions offers benefits beyond health improvement–once-a-day dose comes immediately to mind. It is associated with better compliance and, in a nursing home, lower staff costs. In some cases, as in schizophrenics on clozapine, extended release drugs seem to improve metabolic control.

    The effect in these groups is unlikely to show up in a study using large group averages. Depending on how much more they have to pay, which we don’t know thanks to our third-party payment system, the people actually taking the drugs might find them well worth the (considerable) cost of developing new delivery methods.

    But the paper implies that we’re supposed to believe that this is not progress but, rather, a “distortion of market power.” It even pulls out the hoary old claim that “marketing to physicians and patients drives these patterns of use” as something bad that needs to be regulated out of existence by, one assumes, the super competent FDA.

    The authors write that “rather than society enjoying the consumer surplus from competitive pricing after generic entry, utilization is shifted towards other still-patented drugs.” How “society” gets its hands on consumer surplus is entirely unclear, and heaven forbid that the people actually developing the new release products should actually make a profit on it.

    The paper says stuff like this even though at the very end the authors say they are “agnostic on the extra benefit from the reformulations and newer drugs.” Nevertheless, they are convinced that “expanding policies promoting use of generic pharmaceuticals may be fertile ground for achieving savings.”