The impact of bioequivalence regulation on pharmaceutical firm outcomes: Evidence from China

• In Event: AI, Innovation Policy, and Global Sustainability

Abstract

China’s pharmaceutical market is dominated by generic drugs, accounting for 95% of its market share. However, prior to 2016, these drugs were not required to undergo bioequivalence testing against their innovator drugs, raising concerns about the effectiveness of generic drugs. To address this issue, China implemented mandatory bioequivalence testing in 2016. This study investigates the impact of this policy change on generic drug firms’ R&D investments and their success in passing bioequivalence tests. Employing a difference-in-differences approach, we analyze data from all publicly listed pharmaceutical firms in China. Our findings reveal that firms responded to the new regulations by significantly increasing their R&D investments by 20.7%. In addition, the regulation has led to an average of 2.5 approval per firm annually. Hetergeneity analysis reveals that firms in wealthier provinces, larger firms, and those with higher R&D capacities were more likely to increase their R&D investments and pass bioequivalence tests. Pharmaceutical firms prioritize bioequivalence testing compliance for drugs facing stricter regulatory deadlines or those with potentially higher economic returns. While these findings suggest a positive impact on drug quality compared to the pre-regulation period, some of the molecules mandated to pass bioequivalence testing by the end of 2018 have any drug meeting this requirement. These results suggest that even though the implementation of mandatory bioequivalence testing has spurred positive responses from the industry, more comprehensive strategies are needed to ensure full compliance and further improve the quality of generic drugs in China. 

Author

• Menghan Shen, Teachers College, Columbia University
  Presenting Author