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The Landscape of US Generic Prescription Drug Markets, 2004-2016

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  • Ernst R. Berndt
  • Rena M. Conti
  • Stephen J. Murphy

Abstract

Since the 1984 passage of the Waxman-Hatch Act, generic prescription drugs have become central to disease treatment and generic drug entry and price competition has been vigorous in the U.S. Nonetheless, recent policy concern has focused on potential supply inadequacy and price increases among selected generic drugs. Details regarding the supply of generic drugs throughout the product life cycle are surprisingly unstudied. Here, we examine manufacturer entry, exit, the extent of competition and the relationship between supply structure and inflation adjusted prices among generic drugs. Our empirical approach is descriptive and reduced form, following recent innovations on the older structure-conduct-performance tradition. We employ quarterly national data on quantities, wholesale dollar sales and manufacturers from QuintilesIMS National Sales Perspective data, 2004Q4–2016Q3. Defining a market as the molecule-dosage-form, we observe that median sizes of drug markets are predominantly small, with annual inflation adjusted sales revenues of less than $10 million but increasing over time. The median number of manufacturers in each market is about two, the mean about four. We find evidence to suggest decreasing numbers of suppliers over our study period, particularly following implementation of the Affordable Care Act in 2010 and the Generic Drug User Fee Amendments of 2012, attributable both to more exit and less entry. Approximately 40 percent of markets are supplied by one manufacturer; the share of markets supplied by one or two manufacturers is observed to increase over time and is more likely among non-oral drugs and those belonging to selected therapeutic classes. We find evidence to suggest prices of generic drugs are statistically significantly increasing over time, particularly following the implementation of the 2010 Affordable Care Act and the 2012 Generic Drug User Fee Amendments. Price increases are positively correlated with reduced manufacturer counts and alternative measures of increased supplier concentration, holding all else constant. Our results suggest the market for generic drugs is largely comprised of small revenue products the supply of which has tended towards duopoly or monopoly in recent years. Therefore, it is surprising generic drug prices have not been observed to be higher and potentially risen more over our study period. This issue merits further study; we suggest several testable hypotheses based in economic theory.

Suggested Citation

  • Ernst R. Berndt & Rena M. Conti & Stephen J. Murphy, 2017. "The Landscape of US Generic Prescription Drug Markets, 2004-2016," NBER Working Papers 23640, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23640
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    References listed on IDEAS

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    Cited by:

    1. Nguyen Xuan Nguyen & Steven H. Sheingold & Wafa Tarazi & Arielle Bosworth, 2022. "Effect of Competition on Generic Drug Prices," Applied Health Economics and Health Policy, Springer, vol. 20(2), pages 243-253, March.
    2. Nicholas Bagley & Benjamin Berger & Amitabh Chandra & Craig Garthwaite & Ariel D. Stern, 2018. "The Orphan Drug Act at 35: Observations and an Outlook for the Twenty-First Century," NBER Chapters, in: Innovation Policy and the Economy, Volume 19, pages 97-137, National Bureau of Economic Research, Inc.
    3. Amitabh Chandra & Craig Garthwaite & Ariel Dora Stern, 2018. "Characterizing the Drug Development Pipeline for Precision Medicines," NBER Chapters, in: Economic Dimensions of Personalized and Precision Medicine, pages 115-157, National Bureau of Economic Research, Inc.
    4. Granlund, David & Rudholm, Niklas, 2023. "Calculating the probability of collusion based on observed price patterns," Umeå Economic Studies 1014, Umeå University, Department of Economics, revised 13 Oct 2023.
    5. Michael D. Frakes & Melissa F. Wasserman, 2020. "Investing in Ex Ante Regulation: Evidence from Pharmaceutical Patent Examination," NBER Working Papers 27579, National Bureau of Economic Research, Inc.
    6. Atanu Saha & Yong Xu, 2023. "Estimating Brand Drugs’ Payoff from Pay-for-Delay Deals," Journal of Industry, Competition and Trade, Springer, vol. 23(1), pages 81-99, June.
    7. Jun Li & Di (Andrew) Wu, 2022. "The Price Effect of Drug Price Ceilings: Intended and Unintended Consequences," Management Science, INFORMS, vol. 68(8), pages 5758-5777, August.
    8. Clark, Robert & Fabiilli, Christopher & Lasio, Laura, 2022. "Collusion in the US generic drug industry," International Journal of Industrial Organization, Elsevier, vol. 85(C).
    9. Alice M. Ellyson & Anirban Basu, 2018. "The New Prescription Drug Paradox: Pipeline Pressure and Rising Prices," NBER Working Papers 24387, National Bureau of Economic Research, Inc.
    10. Leemore Dafny & Kate Ho & Edward Kong, 2024. "How Do Copayment Coupons Affect Branded Drug Prices and Quantities Purchased?," American Economic Journal: Economic Policy, American Economic Association, vol. 16(3), pages 314-346, August.
    11. Antonio J. Trujillo & Jose C. Gutierrez & Emmanuel E. Garcia Morales & Mariana Socal & Jeromie Ballreich & Gerard Anderson, 2022. "Trajectories of prices in generic drug markets: what can we infer from looking at trajectories rather than average prices?," Health Economics Review, Springer, vol. 12(1), pages 1-12, December.

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    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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