Generic Drug Competition Is Needed, but How Much?

FEBRUARY 27, 2018
Jennifer Barrett
It is well known that competition can help lower prices of generic drugs, but just how much is needed to effectively reduce costs?

In a correspondence to the editor published in the New England Journal of Medicine, investigators from Brigham and Women’s Hospital in Boston, Massachusetts, reported a strong association between the number of manufacturers and the price of generic drugs.1 Their study sought to determine the right amount of competition to effectively lower costs for patients.

Using 2008-2014 commercial claims data, the investigators examined the relative prices of generic and brand-name drugs. Drugs with a narrow therapeutic index were excluded. For drugs to be eligible for the study, they were required to have been dispensed a minimum of 100 times as a brand name and as a generic version in each calendar year. For the eligible drugs, the investigators estimated the average yearly prices per dose.

In total, 1.9 billion prescription claims were analyzed, and the investigators found a strong association between the number of generic drug manufacturers and the relative price of the product. Prices of generic and brand-name medications were similar for drugs with just 1 manufacturer of the generic version. For drugs with 2 manufacturers of the generic version, the relative price decreased by 10 percentage points, followed by another 17 percentage points with a third manufacturer.

After the third manufacturer, the investigators indicated that prices continued to decrease but at a slower rate with each additional manufacturer. Additionally, larger drug markets exhibited a steeper decline in prices for the first 4 manufacturers than that of their smaller counterparts.

In a similar analysis published by the FDA covering 1990-2004, the findings indicated that drug prices fell by just 6% with 1 manufacturer of the generic version but reached 52% of the price of the brand-name version with 2 manufacturers.2 Conversely, the investigators noted that their findings indicated a smaller relative price decrease with a second manufacturer of a generic drug. This could be because of the shifting relationship between the number of manufacturers and drug prices over the past 10 years, they suggested.1

In recent months, FDA Commissioner Scott Gottlieb, MD, announced several initiatives by the agency to promote the development of generic drugs in the market. To improve generic drug access, he announced efforts to streamline the submission and review process for the shared-system Risk Evaluation and Mitigation Strategy (REMS). The plan includes a 2-pronged approach designed to prevent use of the REMS from branded-drug companies to delay the entry of generic competition.3

Additionally, last year the FDA announced a change to its review policy on generic drug applications, stating expedited review for generic drug applications, with fewer than 3 approved generics for a given drug product.4 Overall, the investigators concluded that the effect on pricing in their study was most pronounced for the first 3 manufacturers of a generic drug, which provides support for the FDA’s 3-manufacturer threshold. Despite this, the investigators noted that other methods, such as the importation from trusted sources, should also be considered to increase competition in the generic drug market.1

  1. Dave CV, Hartzema A, Kesselheim AS. Prices of generic drugs associated with numbers of manufacturers. N Engl J Med. 2017;377(26):2597-2598.
  2. Generic competition and drug prices. S Food and Drug Administration. 5.htm#P3_356. Updated November 28, 2017. Accessed December 28, 2017.
  3. Statement from FDA Commissioner Scott Gottlieb, MD, on new steps to improve FDA review of shared Risk Evaluation and Mitigation Strategies to improve generic drug access [news release]. Silver Spring, MD: US Food and Drug Administration; November 8, 2017. Accessed December 29, 2017.
  4. FDA tackles drug competition to improve patient access [news release]. Silver Spring, MD: US Food and Drug Administration; June 27, 2017. Accessed December 29, 2017.