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Journal Article

Patents, Data Exclusivity, and the Development of New Drugs

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Gaessler,  Fabian
MPI for Innovation and Competition, Max Planck Society;

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Gaessler, F., & Wagner, S. (2020). Patents, Data Exclusivity, and the Development of New Drugs. The Review of Economics and Statistics, forthcoming. doi:10.1162/rest_a_00987.


Abstract
Firms in the pharmaceutical industry typically rely on a period of market exclusivity derived from patent protection and data exclusivity to recoup their investments in R&D. The invalidation of patent rights during drug development renders data exclusivity the sole source of protection and shifts the period of market exclusivity at the project level. Invalidation therefore constitutes a natural experiment that allows us to identify how the duration of market exclusivity affects firms' incentives to innovate. Our analysis is based on a novel data set that links the development histories of drug candidates with underlying patent data. We identify causal effects relying on an instrument for the potentially endogenous patent invalidation. Our findings highlight that shorter durations of market exclusivity reduce the hazards of successful drug commercialization.