Branded Drugs Hold No Consumer Loyalty

Why is it that branded drugs hold no consumer loyalty? Oh, sure, people know some drug brands, like Viagara and Pavix. But, as soon as a branded drugs comes off patent, consumers storm towards the generic. The initial generic drug to enter the market is usually priced at 75% of that of its branded competitior [J. Rizzo & R. Zeckhauser, “Generic Script Share and the Price of Brand-Name Drugs: The Role of Consumer Choice”].

Moreover, the prices of generics will continue to fall relative to the brand name, according the IMS Health in its analysis of generic and brand pricing:

Generic Competition and Drug Prices

This coming year, there are number of significant branded drugs coming off of patent. According to Deloitte, the upcoming patent cliff (branded drugs coming off patent) exposes global pharmaceutical sales of $30 billion:

Patent Cliff Exposes $30 Billion in Global Sales

Clearly, in terms of pricing, as Rizzo and  Zeckhauser point out, pharmaceuticals are preferring to maintain price while ceding market share to the generic competition. But, why? Any suggestions?

As well, don’t get me wrong, I understand that the appeal of generics is the lower patient cost — this much is undeniable. But, what happens if the generic and branded product were almost the same price? What affect would this have on market share and price over time? If anyone has an instance where branded pricing was similar to generic, please share!

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