From "cluster imitation" to "first generic": the impact of market exclusivity incentives on Chinese generic drug manufacturers.

BACKGROUND

China's generic drug industry has long suffered from 'clustering' and homogeneous competition, constraining structural upgrading. In 2021, the drug patent linkage system introduced a 12-month market exclusivity period for first-to-market generic drugs, representing a key institutional change aimed at incentivizing high-quality generic development.

RESEARCH DESIGN AND

METHODS

Using panel data from 1,248 firm-year observations of A-share listed pharmaceutical companies (2015-2023), this study employs a difference-in-differences model comparing chemical generic drug manufacturers (treatment group) with other pharmaceutical sub-sectors (control group) to estimate the net policy effect.

RESULTS

The market exclusivity incentive significantly increased R&D intensity (by approximately 1.2% points, p < 0.01) and patent applications (by 18.5%, p < 0.05) in the treatment group. R&D human capital positively moderates the policy effect. Non-state-owned enterprises and firms in highly competitive sub-sectors exhibit stronger responsiveness.

CONCLUSIONS

The market exclusivity period is positively associated with increased innovation inputs and outputs among Chinese generic drug manufacturers. However, given the short post-policy observation period and concurrent pharmaceutical reforms, these findings should be interpreted cautiously regarding broad causal claims about industry transformation.