Anticompetitive Effects of Brand-Generic Patent Settlements
Speaker(s): Tom McGuire
Date: Thursday, 18 February, 2016
Time: 12.00-13.00
Venue: H5-05
Contact person(s): Teresa Bago d'Uva
Abstract
Brand and generic drug manufacturers frequently settle patent litigation on terms that include a payment to the generic manufacturer. The Federal Trade Commission contends that these agreements extend the brand鈥檚 market exclusivity and amount to anticompetitive market division. Involved parties defend the settlements as normal business agreements that reduce business risk. The anticompetitive hypothesis implies brand stock prices should rise with settlement announcements. We classify 68 brand-generic settlements into those with and without indication of a 鈥渞everse payment,鈥 and conduct an event study of the settlement announcement鈥檚 influence on the brand鈥檚 stock price. For settlements with indication of a reverse payment, brand stock prices rise on average 6% at the announcement. A control group of brandgeneric settlements without indication of a reverse payment had no significant effect. Our results support the hypothesis that settlements with a reverse payment increase the expected profits of the brand manufacturer and are anticompetitive.