Horizontal Shareholdings and Paragraph IV Generic Entry in the U.S. Pharmaceutical Industry

Abstract

The Federal Trade Commission frequently files complaints against “pay-for-delay” settlements between brand-name pharmaceutical companies and generic-drug manufacturers, the latter of which challenge the monopoly status of patent-protected drugs. I document than when the top 20 generic shareholders have more substantial financial interests in the brand, then the likelihood that the brand enters into a settlement agreement with the first generic to challenge the brand goes up. The result of such a settlement is a payment from brand to generic, in exchange for the generic’s delayed entry. Only after the first generic’s entry, a 180-day period of marketing exclusivity for that particular generic starts. Other generics can only market their drugs after that period expires. As such, the settlement between brand and the first generic extends the brand’s monopoly position. I conclude that horizontal shareholdings facilitate coordination between brand-name patent holders and generic challengers in response to the threat of entry.