Last Summer, I reported on a newly released FTC report on authorized generics strategy. The report found evidence of potentially anti-competitive effects from deals cut between branded firms and generic firms that could delay the onset of generic competition. In that post, I concluded with musings over the longer term effects that the size of the potential profits would have on branded firms' innovative effort. While the theory is relatively straight forward, linking these two empirically is a hard problem and one I feared would was insuperable.
I attended the IIOC this last weekend and had the pleasure of finding out that I was wrong. Darren Filson, of Claremont McKenna College, presented "The Impacts of the Rise of Paragraph IV Challenges on Startup Alliance Formation and Firm Value in the Pharmaceutical Industry" where he and coauthor Ahmed Oweis come close. They find that recent judicial decisions that eased a major hurdle that generic firms face to enter into blockbuster drug markets tended to reduce some measures associated with drug R&D inputs. This does not directly answer the authorized generic question but is the first effort I have seen than successfully links eventual drug product market size to drug R&D. Darren tells me that this paper has been accepted for publication at the Journal of Health Economics (kudos) where I suspect it will become an oft cited piece.