by Sahana Giridharan
Abstract
Drug firms have utilized a variety of strategies that contribute to rising drug prices in the
U.S. for the last few years. Strategic entry timing and number of indications a drug is approved
might be two factors that contribute to this rise in prices. While there have been some studies
uncovering a positive relationship between generic entry and branded prices, there has been little
research done on the effects of generic entry on generic prices thus far. This work can impact
policy aimed at decreasing generic drug prices and increasing competition in the generic drug
market.
Oncology and inflammatory bowel disease (IBD) are two disease areas that have a high
price burden to patients in the U.S. today, hence using Medicare Part B Average Sales Price
(ASP) data, I analyze the effect of entry timing on the price of 24 drugs in these two indication
areas. Using the Drugs@FDA Database, I collect data on the FDA approval date of a drug, and
on the indications a drug is approved for. Utilizing OLS, my results suggest that later entry times
lead to lower drug prices, with a 1 year increase in entry time resulting in a 6.99% increase in
prices. Results also suggest that an increase of 1 in the number of indications a drug is approved
for leads to a 49.79% decrease in drug price. This could suggest that having existing generic
competitors in the pharmaceutical market decreases generic prices, and that number of
indications is a strong indicator of drug price.
If the current work is confirmed by future studies similar to this studying entry time and
price in the generic pharmaceutical market, it is possible that future drug policy should focus on
promoting competition within the pharmaceutical market to lower generic prices.
Professor Frank Sloan, Faculty Advisor
Professor Grace Kim, Faculty Advisor
Professor Kent Kimbrough, Faculty Advisor
JEL Codes: L11; I11; C3
