The Anticompetitive Nature of Brand-Name Firm Introduction of Generics before Patent Expiration

Abstract

Brand name pharmaceutical firms in the current health care climate are faced with intense competition from generic firm manufacturers after the brand name version of the drug loses patent protection. Faced with this loss of revenue, as well as the ever present demand by public and private purchasers for cost concessions, some brand name firms have adopted a strategy of introducing their own generic form of their brand name drug before patent expiration. However, these activities can be seen to be anticompetitive under the policy articulated by the classic Areeda & Turner predatory pricing model. Further, economic analysis of these actions using first mover advantage, entry lag, and raising rivals' costs theories bolster this conclusion. Thus, to maintain a level competitive playing field for pharmaceuticals after patent expiration, some incentive structure adjustment for brand name manufacturers' pre-patent expiration is required; e.g., mandatory licensing at the time a generic form is introduced by the brand name firm if introduction is before patent expiration, or prohibition of brand name firm pre-patent expiration supply contracting that extends past the patent expiration date. Overall, introduction of generics by brand name firms before patent expiration may be anticompetitive and solutions that address this issue should ensure that brand name firms cannot utilize patent protection of their brand name drugs to leverage market share in the post-patent expiration generic drug market.