Estimations of generic drug entry in Brazil using count ... - EPGE/FGV

of entrants followed a binomial distribution, approximated by a Poisson distribution,yielding in turn a hazard rate regression; an iterative procedure was undertaken to accountfor the endogeneity of the (unobserved) rent variable present in the three equations. Thepost-patent-expiration price when there are i generic drugs of type k, relative to the priceof the pre-entry branded version of the same drug was regressed on cost and demandshifters and on dummies for each possible number of generics. The total log-revenueof the generic drugs was then regressed on the average pre-patent-expiration brandedversion revenue and on other explaining variables (some of them present in the previousregression equation). The results indicate that the ‡ow of generic industry rents in theUSA increases for the initial 5 to 10 months following patent expiration but then fallsas more entrants compete away price-cost margins. For markets of su¢ cient size entrywill ultimately lead to near-competitive levels, while prices remain above marginal costin small markets without inducing entry. The authors used a data set covering 31 drugsthat went o¤ patent in the late 1980s and early 1990s in the USA.Bae[1] used a proportional hazard regression model to estimate time of delay (in days)to entry after patent expiration in the USA for a list of 77 single-API drugs that lostpatent during the period 1987-1994. Again, entry is faster in markets of greater revenue,with fewer branded competitors, and for chronic-use drugs. The Medicaid Drug RebateProgram, which imposed mandatory rebates o¤ the private sector wholesale prices for theMedicaid (public) purchases, had a positive impact on the entry delay.Hudson[10] studied entry in four developed countries: USA, UK, Germany and Japan.USA and Japan are the greatest pharmaceutical markets in the world, as measured byrevenues. He analyzed: (i) the determinants of generic drug entry; (ii) determinants ofentry delay when entry does occur; (iii) impact of entry on the original brand’s sales. Hisresults also suggest that the greater the market, the more likely are entry and its impacton the original drug’s sales. His estimations are based on a sample of the …fty best-sellingAPIs present in at leas one of these countries.Rudholm [23] analyzed determinants of generic entry in Sweden, where a referencepricing system has been used for reimbursement purposes since 1993. Unfortunately hisdata (a panel of twenty-two APIs from 1972 to 1996) have a short overlap with the periodafter the introduction of this system. He ran an integer-valued autoregressive model byNon-Linear Least Squares, and found that expected pro…ts a¤ect positively the number10