Entry Limiting Agreements for Pharmaceuticals: Pay-for-Delay and Authorized Generic Deals
48 Pages Posted: 4 Jul 2015 Last revised: 21 Apr 2020
Date Written: January 1, 2020
During patent litigation, pay-for-delay deals involve a payment from a patent holder of a branded drug to a generic drug manufacturer to delay entry and withdraw the patent challenge. In return for staying out of the market, the generic firm receives a payment, and/or an authorized licensed entry at a later date, but before the patent expiration. We examine why such deals are stable when there are multiple potential entrants. We combine the first mover advantage for the first generic with the ability of the branded manufacturer to launch an authorized generic to show when pay-for-delay deals are an equilibrium outcome. We further show that limiting a branded firm's ability to launch an authorized generic prior to entry by a successful challenger will deter such deals. However, removing exclusivity period for the first generic challenger will not.
Keywords: pharmaceuticals, pay-for-delay, reverse payments, authorized generics, first mover advantage
JEL Classification: L41, K21, K41
Suggested Citation: Suggested Citation