Policy Brief: What is the price of pay-to-delay deals?

BACKGROUND

  • 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.

METHODOLOGY

  • 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.

KEY FINDINGS

  • 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.

 POLICY ISSUES

  • 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.

About CCP
The Centre for Competition Policy (CCP) conducts interdisciplinary research into competition policy and regulation.

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