Entry time effects and follow-on drug competition.

Pharmaceutical firms have been criticized for concentrating efforts of R&D on the so-called me-too or follow-on drugs. There have been many comments for and against the dissemination of these incremental innovations but few papers have broached the subject from an econometric point of view, possibly because identification of me-too or follow-on drugs is not so obvious. This paper focuses on the impact of entry order on follow-on drug competition in the French market between the years 2001 and 2007. More precisely, this study examines the effects on market share of first entrants in the follow-on drug market and how this possible competitive advantage changes over time. First results are coherent with theoretical microeconomic issues concerning the importance of being first. We find evidence that first movers in the follow-on drug market have the ability to capture and maintain greater market share for a long period of time. The hierarchical market position of follow-on drugs does not seem to be affected by generic drug emergence. From a dynamic perspective, our analysis shows that market share is positively correlated with the ability of follow-on drugs to set prices higher than the average follow-on drug prices in a specific therapeutic class, which means that market power remains considerably important for first movers. Moreover, we found that the optimum level of innovation to maximize market share is the highest one.