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UC Law Science and Technology Journal

Abstract

Much of the extensive commentary on the six month coexclusivity period allowed by the Hatch-Waxman Act focuses excessively on attempts by pioneer drug companies to extend their joint monopoly power by making complex deals with the first new entrant. In this article, I broaden the analytical framework to address a more serious problem that the conventional analysis overlooks: the decreased rate of innovation in the medical field that is attributable in large part to shorter patent exclusivity periods resulting from heightened requirements for FDA approval. As the low-hanging fruit disappears, the rate of new drug discovery drops just as the cost of bringing new drugs to market increases. FDA approval robs the pioneer drug companies of years of their patent term, further crimping the ability to recoup their investment during their initial patent term. Therefore, those writers who insist that the antitrust laws limit the way in which the incumbent and the first new entrant divide the profits during the six-month exclusive period are looking at the wrong margin. The better approach is to let them divide those profits as if there were a single monopolist. The short term welfare losses are more than likely to be offset by the extension in effective patent term that could induce new entrants with improved products. It is far better to encourage competition between two branded drugs than to encourage competition between a branded drug and its generic equivalent.

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