Patents, brand-generic competition and the pricing of ethical drugs in Canada: some empirical evidence from British Columbia, 1981-1994

This paper examines the impact of the 1987 changes in the Canadian Patent A ct on the pricing of ethical drugs. From 1969 to 1987 Canada opted to contr ol pharmaceutical prices by using the compulsory licensing provisions of th e Act to promote competition between branded drugs and their generic equiva lents. In 1987, however, the Act was amended to guarantee patent holders an extended period (7-10 years) of protection. This reduced brand-generic com petition by retarding generic entry and suggests that, ceteris paribus, aft er 1987 pharmaceutical prices increased relative to pre-1987 prices. This h ypothesis is examined for the period 1981-1994 using a sample of 82 drugs f rom the British Columbia Pharmacare Programme. The major conclusions are: d espite evidence of significant first mover advantages which resulted in hig her brand prices, competition from generics succeeded in reducing overall m arket prices prior to 1987; but, after 1987, the efficacy of generic compet ition was reduced and both brand and market prices increased.