Me-Too' Innovation in Pharmaceutical Markets

Critics of me-too innovation often argue that follow-on drugs offer little incremental clinical value over existing pioneer products, while at the same time increasing health care costs. We examine whether consumers view follow-on and pioneer drugs as close substitutes or distinct clinical therapies. For five major classes of drugs, we find that large reductions in the price of pioneer molecules after patent expiration—which would typically lead to decreased consumption of strong substitutes—have no effect on the trend in demand for follow-on drugs. Our findings are likely unaffected by health insurance, competitive pricing of me-toos, marketing, and switching costs.