Institutional Horizontal Shareholdings and Generic Entry in the Pharmaceutical Industry

75 Pages Posted: 10 Dec 2018

See all articles by Jin Xie

Jin Xie

The Chinese University of Hong Kong (CUHK)

Joseph J. Gerakos

Tuck School of Business at Dartmouth College; Dartmouth College - Tuck School of Business

Date Written: November 16, 2018

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.

Keywords: Common ownership; Institutional investor; Product market entry; Pharmaceutical industry; Patent infringement lawsuit; Settlement agreement; Antitrust

JEL Classification: L41, L12, G23, G30

Suggested Citation

Xie, Jin and Gerakos, Joseph J., Institutional Horizontal Shareholdings and Generic Entry in the Pharmaceutical Industry (November 16, 2018). Tuck School of Business Working Paper No. 3285161. Available at SSRN: https://ssrn.com/abstract=3285161 or http://dx.doi.org/10.2139/ssrn.3285161

Jin Xie (Contact Author)

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

Joseph J. Gerakos

Tuck School of Business at Dartmouth College ( email )

Hanover, NH 03755
United States

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

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