Strategic Entry Deterrence: The Case of Pharmaceutical Product Hopping and Its Consequences for the Affordability and Accessibility of Prescription Drugs

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PROJECT SUMMARY/ABSTRACT Prescription drug pricing has long been an issue of public concern due to worries about excessive spending by patients, public insurance programs, and private payers. Furthermore, high out-of-pocket costs can cause medication nonadherence and worsen health problems, ultimately increasing spending on healthcare services. A large proportion of prescription drug expenditures is due to high prices for brand name drugs, which often face limited competition for several years due to market exclusivities. Generics are typically much cheaper than their branded counterparts due to price competition, and the share of generic prescriptions dispensed increases quickly after generics enter the market. This has led brand firms to develop strategies to extend their monopolies, in some cases by deterring the introduction of generic versions. If effective, this forces patients and payers to pay monopoly prices beyond the time period anticipated by regulators. One such strategy is called product hopping, which aims to switch patients from one drug facing generic entry to a similar drug with later-expiring market exclusivity, sometimes discontinuing the original drug product. The ultimate objective of this research project is to investigate the effects of this marketing strategy on the affordability and accessibility of prescription drugs to patients and on spending by third-party payers. Few studies on the use and effects of this strategy exist, leaving unanswered key questions that this project aims to investigate—specifically, whether product hopping: (1) deters and/or delays market entry by generic firms; (2) diminishes market penetration by generic versions; (3) affects within drug class substitution and/or market expansion; and (4) affects prescription drug use, average and minimum prices, out-of-pocket costs, and overall payments. A large dataset has been assembled for this project that incorporates detailed regulatory information about drug approvals, products, market exclusivities, and marketing, along with data on firms and lawsuits. The constructed sample consists of 165 novel active pharmaceutical ingredients first approved between 2000 and 2018, resulting in 323 originally approved drug products sponsored by 93 firms and 273 subsequently approved similar drug products from the same firms. Product discontinuations occur within 3 years post-launch of a new product for 93 active ingredients. Using this drug-level data, regression models will be estimated to examine the effects of product hopping on the hazard of first generic entry and the number of generic entrants for the original products, using non-product hop drugs within the same drug class as controls. I will merge this data with individual-level data to estimate the effects on market penetration by generics, within drug class substitution and market expansion, and use and spending by patients and payers. The results of this research project will provide key evidence that will inform prescription drug policy, including decisions about whether and how to regulate product hopping and other strategic behavior by pharmaceutical firms.