Competition Within The U.s. Pharmaceutical Industry

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Competition within the U.S. pharmaceutical industry is very high. With less elastic demand than for other industries, profit potential is enormous. Demand is more inelastic as prescription drugs are necessary for many individuals with illnesses such as diabetes and high blood pressure. Within the industry, there are two types of manufacturers: brand name and generic. These groups compete not only among one another, but with each other as well. Brand name pharmaceutical companies often try to, and succeed in preventing or delaying approval and circulation of generic equivalents. The most common tactic used is a reverse payment settlement agreement, otherwise known as “pay-for-delay”. Generic firms promise to delay the circulation of their…show more content…
On the other hand, generic companies’ primary activities include developing, producing, marketing, distributing, and gaining regulatory approval for generic drugs (Philips, 2014). While generic companies do engage in research and development (R&D), it’s goal is to create similar drugs that the brand name manufacturer just patented. If successful, the generic company files an Abbreviated New Drug Application (ANDA) for approval and must make a certification against each patent by the brand name manufacturer. To do this, the generic company must make a Paragraph IV certification which states that the patent is invalid or will not be infringed by the generic product (Fitzpatrick, Cella, Harper & Scinto, 2012). In a reverse payment settlement agreement, brand name pharmaceutical manufacturers provide compensation to generic pharmaceutical manufacturers in order to settle the challenge to their patent. In order to receive the compensation, the generic company must agree to drop its patent challenge and is restricted from marketing and distributing its product for some stated period of time. These settlements act as patent extensions, providing the brand name firm with more monopoly time on a drug. Reverse payment settlement agreements appeared as an unexpected result of the Hatch-Waxman Act of 1984, which
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