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

3 Literature on pharmaceutical entry: a surveyTo the best of our knowledge, only two econometric estimations have been applied to thepharmaceutical in Brazil, all of them trying to measure the impact of generic drug entryon prices. Fiuza and Lisboa [12] pointed out that branded drug prices would go up inface of similar drugs´ market power increase, a result similar to Frank and Salkever’s [13],but the data base utilized was previous to the Generic Dug Act.Nishijima and Biasoto [21] used a di¤erent sample (covering both before and afterthe Generic Drug Act) and a slightly di¤erent model from Fiuza and Lisboa’s and gotdi¤erent results, namely that reference drug prices would go down as they faced greaternumbers of generic copies. Lopes [18] recently replicated Fiuza and Lisboa’s model withmore drugs in a more recent period and reached the same conclusions as the latter.A better understanding of the process that generates generic drug entry is thereforeof extreme interest for Brazilian policymakers, for the industry and for the academia ingeneral. A few models in the international literature may then become a starting pointfor our work.As Rei¤en and Ward [22] point out, the generic drug industry is a useful …eld forstudying empirically how competition evolves within a market: (i) each chemical representsa distinct experiment; (ii) information about the market for each drug is observableto researchers; e.g. date of opening of the market (the patent expiration date); (iii) …rmsmust sink signi…cant costs to apply for the authorities’approval prior to knowing when,or how many, rivals will enter the market.Papers by Danzon and Chao[5] and Lanjouw[16] indicate that price regulation underminescompetition in o¤-patent markets because they discourage generic drug entry. Inthe same direction –even though looking for industrial policy, scale economies, and safetyregulation explanations – Thomas[26] also …nds that the same countries with weakeror non-existent price control – and consequently higher prices (US, UK, Germany andSwitzerland) –have stronger competitive performance, and account for most of the globaldrugs launched (drugs sold in more countries, and with greater market shares), whileother developed countries tend to launch more often local drugs.The main empirical references in generic drug entry are Scott-Morton [24], [25] andRei¤en and Ward [22]. The three papers studied the US market.8