Not all drug prices are going up. Amid the US public’s fury over the escalating costs of brand-name medications, the prices of generic drugs have been falling, raising fears about the profitability of major generic manufacturers.
Teva Pharmaceuticals reported that it had missed analysts’ earnings estimates in the second quarter and planned to lay off 7,000 workers. Its share price plummeted 24 per cent in one day as investors worried there was no end in sight. Share prices of other generic drugmakers also declined, as did those of wholesalers, which profit from the sales of generic drugs and have said they expect prices to continue declining.
Mylan, another large generic drugmaker, also sells the EpiPen, the brand-name allergy treatment whose price increases have stoked outrage over the past year. But the company’s primary business is as a seller of generic drugs. This may seem like good news for consumers, but it is unclear how much they will save.
Why are generic prices falling? Generic drugs are copycat versions of brand-name products and — to a point — their prices are expected to drop over time. When a brand-name drug first loses its patent protection, prices fall slowly.
Over the next couple of years, as more competitors enter the market, the prices drop even more, until the pills become commodities and sell for pennies. Blockbuster drugs that have recently taken this path include Lipitor and Plavix, the cholesterol-lowering and blood-thinning pills that now cost as little as $10 (Dh36.7) for a monthly prescription.
Generic drug prices have been declining in the US since at least 2010, according to an August 2016 report by the US Government Accountability Office. They have fallen even in the face of high-profile exceptions: Dozens of old generic drugs have risen in price in recent years, for reasons that include supply disruptions and competitors’ leaving the market.
Despite this, the trend toward deflating generic prices appears to have accelerated as companies have more aggressively undercut each other’s prices.
Making matters worse for the generics companies, they are missing out on peak profit potential because not as many brand-name products are losing patent protection. The six-month period after a drug goes generic is typically the most lucrative time for the first company to market. And the Food and Drug Administration has been clearing out a backlog of generic-drug approvals, meaning more competitors are now entering markets for certain drugs.
George S. Barrett, the chairman and chief executive of Cardinal Health, a major drug distributor that reported declining profits, said generic deflation was not new, but that the company historically had been able to anticipate it. “It just looked a little different than we had seen,” he said.
In recent years, generic companies have gone on acquisition sprees in an effort to head off challenges. But they have been outmanoeuvred by those who buy their products, a trend that has been intensifying. Major pharmacy chains, drug wholesalers and pharmacy benefit managers (which operate drug plans for insurers) have united into colossal buying groups.
For example, Express Scripts, a large pharmacy benefit manager that runs its own mail-order pharmacy, teamed up with Walgreens Boots Alliance in May to purchase generics. “What we’re seeing is incredible competition — and we’re causing it,” said Dr. Steve Miller, the chief medical officer for Express Scripts.
So are consumers saving any money? The declining prices are broadly beneficial to the health care system, and may put some slight brake on rising premiums. But most of those with health insurance pay a fixed co-payment — $10, for example — for each generic prescription, and therefore don’t pay more or less, regardless of any fluctuation in the actual price.
And even those who pay cash for generics may not notice a drop in price because many are already cheap. Retail drug prices dropped 2.4 per cent over the last year, based on a weighted average of 92 generics that have been on the market for at least a year. But that figure hides vast variations.
The retail price for clopidogrel, the generic for Plavix, dropped 37 per cent, to $3.77 from $6.03 a pill, GoodRx found. Conversely, the blood pressure drug metoprolol went up about 70 per cent, to 59 cents a pill from 35 cents. But GoodRx noted that consumers can almost always do better than paying the retail price, or sometimes even their copayments, using websites — like its own — that offer discounts.
Does this mean the problem with high drug costs has eased? Overall drug spending is still on the rise because of the skyrocketing price of new, brand-name drugs. For example, a report by QuintilesIMS, an industry research firm, found that in 2016, drug spending increased by nearly 5 per cent, after accounting for discounts and rebates paid by manufacturers.
Generic drugs accounted for 89 per cent of prescriptions dispensed in 2016, but only 26 per cent of the costs, according to QuintilesIMS. Each year, generic drugs make up a larger share of the prescriptions filled, while accounting for a smaller portion of drug costs, said Chester Davis Jr., the president of the Association for Accessible Medicines, the generic industry trade group.
New treatments for conditions like cancer and multiple sclerosis often enter the market with annual price tags in the tens of thousands — and sometimes hundreds of thousands — of dollars. Many manufacturers also raise the price once or twice a year, compounding the problem.
“Generic drugs are among the best-value products in health care,” said Dr. Aaron S. Kesselheim, an associate professor at Harvard Medical School. But for those who must take a brand-name drugs because there is no other alternative, “they’re the ones bearing the burden or the brunt of the drug price increases in recent years.”
