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Did the Antitrust Sea Change Sink Pharmaceutical Innovation? Testing the Predictions of an Industry Under Siege

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Just a few years ago, questions regarding the extent to which IP enforcement strategies in the pharmaceutical sector should be subjected to antitrust law invoked a fierce policy debate. In controversial cases involving “reverse payment” patent settlements and “product hopping,” defendants argued that antitrust intervention in these areas would cause more harm than good by eroding long-term dynamic competition (incentives to innovate) in favor of short-term static competition (lower prices through generics). Defendants were supported by a number of amici participants, including a prominent group of self-titled “Antitrust Economists.” The interventionist side dismissed these arguments. The policy debate was largely settled in favor of the interventionists around the 2013-2015 time period, with the Actavis, Lamictal, Namenda, and Doryx decisions, and these decisions had a significant deterrent effect on the industry. But deterrence is only one half of the story. The second half is: has there been a corresponding adverse effect on the underlying dynamic competition that defendants and their amici supporters had predicted? Now that we have a natural experiment, where the enforcement environment and industry behavior has changed over a multi-year period, antitrust economists should test the predictions they offered in their amicus briefs. The article concludes by proposing a few suggestions on the types of studies that could be conducted.

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