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.