Estimating Brand Drugs’ Payoff from Pay-for-Delay Deals

The objective of this paper is to develop an analytical and estimation framework to empirically quantify a brand drug’s incremental revenue from delayed generic entry pay-for-delay (“PFD”) deal. The paper’s dataset comprises 78 branded drugs and monthly data from January 2009 through March 2020. Consistent with the predictions of the analytical model, we find that relative to non-PFDs, PFD drugs have significantly higher revenue growth rates prior to generic entry. For the 13 PFD drugs in our sample, we estimate that the brands’ total incremental revenue from delaying generic entry ranges between $17.6 billion and $22.7 billion. We also show that delaying generic entry by a single year generates more than four times the brand’s annual revenue.