The Effects Of Patent Expirations On The Prices And Utilization Of Original Drugs

Entering the 21st century,large numbers of patented drugs face the problem of patent expiration.After the patent expiration,generic drugs would have a chance to enter the drug market.The supply of generic drugs will increase the supply of total drugs.Intuitively,it may causes the price of original drugs decrease and the utilization of original drugs increase.In this situation,exploring the effects of patent expirations on the prices and utilization of original drugs in China's pharmaceutical market,on the one hand,helps us understand the operation of the off-patent drug market and provide reference for the development of China's pharmaceutical industry.On the other hand,it helps to know whether the consumers can get the drugs with lower average price after the patent expiration,so as to improve the welfare.Empirical Studies on the effects of patent expirations on the prices and utilization of original drugs in China are rare.In this paper,we use monthly data of 60 original drugs in a Class A tertiary general hospital in Hebei province from Apr.2007 to Sep.2017.The effects of patent expirations on the prices and utilization of original drugs are empirically analyzed.Considering the endogenous relationship between drug price and drug utilization,we set up the simultaneous equations model of panel data.On the basis of controlling individual effects and annually time effects,the two stage least squares(2SLS)method was used to estimate the model.The estimation results show that the expiry of the patent makes the price and utilization of the original drugs increase.Since the classification of drugs in the Medical Insurance directly affect the proportion of drug payment,and it can affect drug demand dramatically,we use it as an important control variable in the drug utilization equation.The estimation results show that compared to the Medical Insurance class A.the drug category for the Medical Insurance is class B and the non-medical insurance makes the drug sales decrease.Furthermore,the sales of non-medical insurance drugs decrease more,which is in line with the reality.According to the previous literature and the reality of our country,the price increase of the original drugs after patent expiration may be due to the strong market acceptance and competitiveness,on the other hand,the immaturity development of generic drugs make themselves poor substitutes.The utilization increase of the original drugs may be due to the expansion of drug market demand in China,and the increasing penetration of original drugs.