Policy Brief: What is the price of pay-to-delay deals?
February 20, 2013 Leave a comment
- A pay-to-delay deal (or ‘reverse payment’) involves a payment from a branded drug manufacturer to a generic manufacturer to delay market entry.
- Pay-to-delay deals are on the rise on both sides of the Atlantic.
- According to the Federal Trade Commission, pay-to-delay deals stifle competition from lower-cost generic medicines and have cost US consumers on average $3.5 billion per year.
- The author considers entry limiting agreements in one pharmaceutical segment: the psychostimulant drugs used for the treatment of attention deficit hyperactivity disorder (ADHD). Pay-to-delay deals in this segment highlight the tension between patent laws and antitrust laws in an economically significant area.
- Simulated market equilibrium prices are computed under hypothetical situations constructed to mimic delays in generic drug entry in the market.
- Under all three of the counterfactual conditions considered, there is a significant increase in the price of ADHD drugs.
- In a typical pay-to-delay deal, two features may be present: a two to three year delay in any generic entry, followed by a term of licensed entry and joint profit maximisation.
- The results of the analysis support reforms that establish the presumption of the anti-competitiveness of pay-to-delay deals.
FOR MORE INFORMATION
The full working paper 13-1 and more information about CCP and its research is available from our website: www.competitionpolicy.ac.uk
ABOUT THE AUTHOR
- Dr Farasat Bokhari is a Senior Lecturer in the School of Economics at UEA and a member of the ESRC Centre for Competition Policy.