Media Releases

Speedy generic approval may not benefit consumers as much as expected, Rotman model shows

February 8, 2011

TORONTO, ON – Faster approval times for gener­ic drugs will get them into con­sumers’ hands quick­er, but may not make the price any bet­ter, a pric­ing and mar­ket­ing researcher has found.

A math­e­mat­i­cal mod­el cre­at­ed by Andrew Ching shows that few­er firms enter the mar­ket­place because the chances of get­ting there first and com­mand­ing the best prof­its are dra­mat­i­cal­ly small­er when drug approval times are short­er. Ching is an asso­ciate pro­fes­sor of mar­ket­ing at the Uni­ver­si­ty of Toronto’s Rot­man School of Man­age­ment.

Using the drug cloni­dine, Prof. Ching’s mod­el showed the num­ber of firms in the mar­ket­place dropped by 25 per­cent, from 12 to nine, under a short­ened approval time sce­nario.

“Poten­tial­ly, for the con­sumer, the price may not drop as much as you’d hope,” said Prof. Ching.

Under the cur­rent sit­u­a­tion it takes com­pa­nies an aver­age of more than 20 months to get U.S. Food and Drug Admin­is­tra­tion (FDA) approval for gener­ic ver­sions of estab­lished drugs. That makes approval times uncer­tain and com­pa­nies often must go through sev­er­al rounds of review. Com­pa­nies also pay sev­er­al mil­lion dol­lars when they apply for FDA approval. Giv­en these as well as oth­er devel­op­ment costs, firms mak­ing it to the mar­ket­place last some­times expe­ri­ence loss­es.

The FDA in recent years has talked about reduc­ing its approval times in order to ben­e­fit con­sumers, and has pro­posed strate­gies for how it could do so, includ­ing spend­ing more mon­ey in order to bring on extra staff to do the reviews.

Prof. Ching says his results, which were pub­lished in Inter­na­tion­al Eco­nom­ic Review, sug­gest the FDA should think twice before going that route.

“Even if the gov­ern­ment spends a large amount of resources to improve the effi­cien­cy of the FDA in approv­ing gener­ic drugs, it does not nec­es­sar­i­ly achieve the goal of enhanc­ing wel­fare,” Prof. Ching’s paper con­cludes.

The com­plete study is avail­able at:

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Ken McGuf­fin
Man­ag­er, Media Rela­tions
Rot­man School of Man­age­ment
Uni­ver­si­ty of Toron­to
Phone: 416–946-3818
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