Entry and Competition in Generic Biologics

Managerial and Decision Economics, 2007

39 Pages Posted: 17 Jul 2007 Last revised: 20 Sep 2014

See all articles by Henry G. Grabowski

Henry G. Grabowski

Duke University - Department of Economics

David B. Ridley

Duke University - Fuqua School of Business

Kevin A. Schulman

Duke University Medical Center

Abstract

Patents for several blockbuster biological products are expected to expire soon. The Food and Drug Administration is examining whether biologics can and should be treated like pharmaceuticals with regard to generics. In contrast with pharmaceuticals, which are manufactured through chemical synthesis, biologics are manufactured through fermentation, a process that is more variable and costly. Regulators might require extensive clinical testing of generic biologics to demonstrate equivalence to the branded product. The focus of the debate on generic biologics has been on legal and health concerns, but there are important economic implications. We combine a theoretical model of generic biologics with regression estimates from generic pharmaceuticals to estimate market entry and prices in the generic biologic market. We find that generic biologics will have high fixed costs from clinical testing and from manufacturing, so there will be less entry than would be expected for generic pharmaceuticals. With fewer generic competitors, generic biologics will be relatively close in price to branded biologics. Policy makers should be prudent in estimating financial benefits of generic biologics for consumers and payers. We also examine possible government strategies to promote generic competition.

Keywords: generic, biologic, biological

JEL Classification: L1, L5, L65

Suggested Citation

Grabowski, Henry G. and Ridley, David B. and Schulman, Kevin A., Entry and Competition in Generic Biologics. Available at SSRN: https://ssrn.com/abstract=992479

Henry G. Grabowski (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1839 (Phone)

David B. Ridley

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

Kevin A. Schulman

Duke University Medical Center ( email )

100 Fuqua Drive
Durham, NC 27715
United States

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