Horizontal Shareholdings and Paragraph IV Generic Entry in the U.S. Pharmaceutical Industry

• Published date: 01 March 2021
• Date: 01 March 2021
• DOI: http://doi.org/10.1177/0003603X20985797
• Subject Matter: Articles

Article

Horizontal Shareholdings

and Paragraph IV Generic

Entry in the U.S.

Pharmaceutical Industry

Jin Xie*

Abstract

The Federal Trade Commission frequently files complaints against “pay-for-delay” settlements

between brand-name pharmaceutical companies and generic-drug manufacturers, the latter of which

challenge the monopoly status of patent-protected drugs. I document than when the top 20 generic

shareholders have more substantial financial interests in the brand, then the likelihood that the brand

enters into a settlement agreement with the first generic to challenge the brand goes up. The result of

such a settlement is a payment from brand to generic, in exchange for the generic’s delayed entry. Only

after the first generic’s entry, a 180-day period of marketing exclusivity for that particular generic

starts. Other generics can only market their drugs after that period expires. As such, the settlement

between brand and the first generic extends the brand’s monopoly position. I conclude that horizontal

shareholdings facilitate coordination between brand-name patent holders and generic challengers in

response to the threat of entry.

Keywords

institutional horizontal shareholdings, pharmaceutical industry, patent infringement lawsuit, settlement

agreement, antitrust

Introduction

In this article, I show institutional horizontal shareholdings (i.e., a group of institutional investors that

hold large stakes in competitors) are associated with product–market coordination between compet-

itors.

1

This is different from earlier work that has shown links between common ownership and

* The Chinese University of Hong Kong, Hong Kong

Corresponding Author:

Jin Xie, The Chinese University of Hong Kong, Central Ave, Hong Kong.

Email: xiejin@cuhk.edu.hk

1. “Horizontal shareholdings” is used to describe the situation in which a common set of investors own significant shares in

corporations that are already horizontal competitors in a product market. See Einer Elhauge, Horizontal Shareholdings, 129

HARV.LAW REV. 1267 (2016). [hereinafter Elhauge, Horizontal Shareholdings].

The Antitrust Bulletin

2021, Vol. 66(1) 100–112

ªThe Author(s) 2021

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DOI: 10.1177/0003603X20985797

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