Generic Entry Jujitsu: Innovation and Quality in Drug Manufacturing

The manufacturing side of the pharmaceutical industry has been neglected in innovation theory and policy, with the unfortunate result of stagnant manufacturing techniques driving major problems for the healthcare system. This innovation failure has roots in ineffective intellectual property incentives and high regulatory hurdles to innovative change. Changes in pure regulation or intellectual property incentives have significant potential to help the innovation deficit, but are not the only possibility for change. A relatively minor regulatory change could harness the powerful dynamics of pioneer/generic competition surrounding generic drug market entry.

If pioneer firms were permitted to make label claims committing to specific manufacturing quality standards above those required by regulation, generics would need to match those standards to match the pioneer label and win approval. This would create incentives for both pioneers and generics to improving manufacturing control and quality capabilities, ideally leading to a virtuous manufacturing quality arms race with benefits for both the healthcare system and industry itself.