No Free Launch: At-Risk Entry by Generic Drug Firms

After receiving FDA approval, a generic drug manufacturer can launch ‘at risk’ before any patent infringement litigation concludes, but it risks paying damages if it ultimately loses the litigation. A generic can eliminate the risk by waiting to launch until after the appeals process is complete but waiting has downsides too. We examine FDA approvals of generic drug applications with ‘first-filer’ status (which precludes other generics from entering beforehand) to examine empirical patterns of at-risk entry. In our data, litigants usually settled prior to a legal decision. For the remainder, drugs that received FDA approval prior to a favorable district court decision were always launched at risk. Generics without FDA approval before a favorable district court decision launched upon approval unless the approval was close in time to the appeal decision, or it had forfeited the first-filer exclusivity (indicating a low cost of waiting).