TY - JOUR AU - Conti, Rena M AU - Berndt, Ernst R TI - Specialty drug prices and utilization after loss of U.S. patent exclusivity, 2001-2007 JF - National Bureau of Economic Research Working Paper Series VL - No. 20016 PY - 2014 Y2 - March 2014 DO - 10.3386/w20016 UR - http://www.nber.org/papers/w20016 L1 - http://www.nber.org/papers/w20016.pdf N1 - Author contact info: Rena M. Conti Boston University Questrom School of Business Department of Markets, Public Policy and Law 595 Commonwealth Ave Boston, MA 02215 Tel: 617-353-1156 E-Mail: rconti@bu.edu Ernst R. Berndt MIT Sloan School of Management 100 Main Street, E62-533 Cambridge, MA 02142 E-Mail: eberndt@mit.edu M1 - published as Rena M. Conti, Ernst R. Berndt. "Specialty Drug Prices and Utilization after Loss of U.S. Patent Exclusivity, 2001–2007," in Ana Aizcorbe, Colin Baker, Ernst R. Berndt, and David M. Cutler, editors, "Measuring and Modeling Health Care Costs" University of Chicago Press (2018) M2 - featured in NBER digest on 2014-09-02 M3 - presented at "Measuring and Modeling Health Care Costs", October 18-19, 2013 AB - We examine the impact of loss of U.S. patent exclusivity (LOE) on the prices and utilization of specialty drugs between 2001 and 2007. We limit our empirical cohort to drugs commonly used to treat cancer and base our analyses on nationally representative data from IMS Health. We begin by describing the average number of manufacturers entering specialty drugs following LOE. We observe the number of manufacturers entering the production of newly generic specialty drugs ranges between two and five per molecule in the years following LOE, which is generally less than that observed historically for non-specialty drugs. However, the existence of time-varying and unobservable contract manufacturing practices complicates the definition of "manufacturers" entering this market. We use pooled time series methods to examine whether the neoclassical relationship between price declines and volume increases upon LOE holds among these drugs. First, we examine the extent to which estimated prices of these drug undergoing LOE fall with generic entry. Second, we estimate reduced form random effects models of utilization subsequent to LOE. We observe substantial price erosion after generic entry; average monthly price declines appear to be larger among physician-administered drugs (38-46.4%) compared to oral drugs (25-26%). Additionally, we find average prices for drugs produced by branded manufacturers rise and prices for drugs produced by generic manufacturers fall upon LOE. The latter effect is particularly large among oral drugs. In pooled models, volume appears to increase following generic entry, but this result appears to be largely driven by oral drugs. We discuss second-best welfare consequences of these results. ER -