The objective of this article is to estimate the value of ‘follow-on’ or ‘me-too’ drugs from the payer, industry and societal perspectives. Since me-too drugs do not bring additional clinical benefits, they are only valuable to payers if they save costs. An empirical model was constructed to identify the factors affecting whether a me-too drug results in cost savings to the pharmaceutical budgets of payers. These factors included the intensity of promotional spending, price discount and time to entry. Twenty-seven second-entrant products with limited differentiation were identified; their launch dates ranged from 1988 to 2009. On average, me-too drugs launch 2.5 years after the first entrant, with 20 % more promotional investment, and capture 38 % of market share within 4 years. Peak market share is significantly affected by share of voice (p < 0.001) but not price discount (p = 0.77). Launch delay was significant in terms of reducing both market share (p < 0.001) and price (p < 0.05). With a launch price 15 % below the incumbent, cumulative savings from use of a me-too drug peak at over $1000 million, but decrease rapidly after the first entrant becomes generic and only amount to $450 million over the me-too drug’s lifecycle. With a price discount less than 10 %, cumulative savings are negative over the life of the me-too drug. Therefore, me-too drugs may be cost saving in the short term, but can represent a cost in the longer term. From a societal perspective, me-too drugs always decrease the economic surplus if they do not grow the market. If me-too drugs grow the market by 20 %, they augment, on average, the economic surplus only if the variable costs (including promotional investment) do not increase by more than $300 million per year.
