Sharpen Your Sword: The Reaction of Branded Pharmaceutical Firms to the Threat of Generic Entry

While patents have been shown to play a role as barriers to entry, there is heterogeneity in the extent to which they actually deter entry. Whereas weaker patents may be relatively inefficient at deterring competitor entry ex-ante, we find they can delay it, ex-post, once competitors have threatened to enter. Leveraging the unique characteristics of the pharmaceutical sector, where we observe the exact moment an entry threat materializes, we show that incumbents wait until such a threat occurs to disclose information about their weaker patents protecting a threatened drug and disproportionately use these patents in litigation. This strategy is positively associated with entry delay, suggesting that there are second-mover advantages such that by waiting until a competitor entry threat materializes incumbents not only avoid their weaker patents being invalidated ex-ante but also learn about the competitor strategy ex-post