FTC: Branded Generics Have Pros and Cons
Allowing brand-name drug manufacturers to market authorized generic versions of blockbuster drugs has benefits for consumers, but only up to a point, according to a recent analysis conducted by the US Federal Trade Commission (FTC).
The 270-page report, “Authorized Generic Drugs: Short-Term Effects and Long-Term Impact,” confirmed that retail drug prices fall by 4% to 8% when an authorized generic is introduced at the same time as an ordinary generic. Along with that drop comes a substantial decrease in revenue for generic companies—a side effect FTC warns could thwart competition.
“Authorized generics modestly reduce drug prices during the first 180 days of generic competition,” explained FTC Chairman Jon Leibowitz, adding that the presence of the branded generics “could affect decisions by generic competitors to challenge patents on drugs with low revenues.” Although the Generic Pharmaceutical Association (GPhA) and FTC are historically at odds on the issue of patents, they agree on this point.
More troubling, argued Leibowitz, is the FTC’s finding that authorized generics give branded companies leverage to negotiate “pay to delay” settlements—deals FTC maintains benefit companies, not consumers. The report noted that in 2010, 60% of all patent settlements involved agreements by brand companies not to launch an authorized generic in exchange for a longer period of brand exclusivity.
For patients, the consequence of the deals is costlier drugs, both now and in the future, according to Leibowitz. “Consumers have to pay the higher brand prices while the generic delays its entry and, once generic entry does occur, consumers pay higher prices without the benefit of competition from the authorized generic,” he said.
In its response to the FTC report, GPhA roundly rejected that argument, noting that 17 of the expected 23 generics that will launch this year— including generic Lipitor and Plavix— are the result of patent settlements. “It’s the patent, not the patent settlements that holds up the launch of a generic drug,” said GPhA’s executive director Bob Billings.
Generics Saved $931 Billion in Drug Spending
Generic drugs saved the nation $931 billion over the last decade, IMS Health and the GPhA reported in September. Last year alone, the savings from switching to generics reached $157 billion, averaging $3 billion every week. One-third of the total savings is attributed to newer generics that have entered the market since 2001, according to the report.
The numbers far exceed targets set nearly 30 years ago, when the Hatch– Waxman Act first created an abbreviated pathway for generics. “When the generic drug industry was established by Congress in 1984, it was predicted that generic drugs would save our country $1 billion a year,” said Ralph G. Neas, GPhA president and chief executive officer. “This analysis shows the savings generated by generic prescription drugs are now three times that amount every week,” he noted.
The savings aren’t limited to the big players in the nation’s health care system. They also affect how much patients pay when they pick up their prescriptions. In 2010, patients paid an average copayment of $6.06 per generic prescription—a bargain compared with preferred and non-preferred brand drugs, priced at $23.65 and $34.77, respectively. Given these reductions in out-of-pocket costs, policies that address the bottleneck in firsttime generic approvals are urgently needed, the report said.
For generics to continue generating savings for patients and payers, GPhA called for legislative action in 4 key areas: increasing generic utilization rates in Medicaid, continuing “pay to delay” settlements it says speed generics’ entry to market, increasing funding to the FDA’s Office of Generic Drugs, and implementing a workable approval pathway for bioimilars.
As health care reform is implemented, “Policies that encourage generic dispensing and steer clear of unwarranted restrictions on generic use can bring even greater savings,” the group stated.
Patent Cliff To Boost Pharmacy Profits
In the age of the patent cliff, pharmacies in supermarket settings are poised for a small windfall, a new analysis shows.
In its September 2011 report, “Generic Drugs Are Healthy Rx for Supermarkets,” Moody’s Investors Service said supermarkets that focus on pharmacy operations can expect profits to increase modestly in 2012 as generic alternatives to 7 of the world’s 20 best-selling drugs enter the market.
Kroger, Safeway, and Supervalu— whose pharmacy sales account for 8% to 10% of total retail sales—are among the chains that will benefit most when patients begin switching to highermargin generics, the ratings firm said. “We project a low-single-digit percentage increase in 2012 gross profit dollars for the three largest supermarket chains,” said Mickey Chadha, a vice president and senior analyst at Moody’s.
The agency said the benefits to supermarket pharmacies will likely be tempered as pharmacy benefit managers (PBMs) attempt to increase their bottom line, however. “PBMs will likely push hard to reduce reimbursement rates for generic prescriptions,” Moody’s analysts concluded. PT
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