Can branded drugs benefit from generic entry? The role of detailing and price in switching to non-bioequivalent molecules

Abstract

Patent expiration represents a turning point not only for the brand losing patent protection, as bioequivalent generic versions of the drug quickly enter the market at reduced prices, but also for the non-bioequivalent drugs that retain patent protection in the same therapeutic category. In this paper, we study how physician characteristics and prescribing decisions impact competition among molecules of a therapeutic class once generic versions of one of these molecules enter the market. Our results show that the traditional focus on the single molecule losing patent protection is not sufficient to understand the impact of generics in the category and their cost-saving potential. We find that generic entry in the category under analysis not only leads to the expected decrease in the prescription of the branded molecule bioequivalent to the generics, but also unexpectedly benefits other non-bioequivalent branded drugs as detailing-sensitive physicians switched from the contested molecule to these other branded alternatives. However, a group of price-sensitive physicians did increase their use of the new generics to the detriment of all branded alternatives, allowing for additional savings in health care costs. The overall market result is a slight decrease in the prescriptions of the now much cheaper molecule. This paradox was identified previously in several pharmaceutical categories [Caves, R.E., Whinston, M.D., & Hurwitz, M.A. (1992), “Patent expiration, entry and competition in the US pharmaceutical industry: An exploratory analysis”, Brookings Papers on Economic Activity, Microeconomics, vol. 1991, 1–48.], but lacked a systematic understanding and explanation. We show that the understanding of such market paradoxes requires marketers and policy makers to (1) determine the size of physician segments sensitive to marketing activity and prices, and (2) assess the marketing activity of all pharmaceutical firms, whether bioequivalent or not. We discuss the managerial and policy implications of our results.