Observations Yankee Doodling

What’s happening to cheap generic drugs?

BMJ 2015; 351 doi: https://doi.org/10.1136/bmj.h5329 (Published 05 October 2015) Cite this as: BMJ 2015;351:h5329
  1. Douglas Kamerow, senior scholar, Robert Graham Center for policy studies in primary care, professor of family medicine at Georgetown University, and associate editor, The BMJ
  1. dkamerow{at}aafp.org

Clever business deals lead to big profits on older generic drugs

When I was in medical school in the 1970s I learned all I thought I needed to know about generic drugs from the esteemed (and wonderfully named) pharmacologist Louis Lasagna.1 He taught us not to worry too much about bioequivalence and save our patients some money by prescribing generics most of the time. Exceptions were rare, such as digoxin, where bioavailability variations could actually be clinically important. Good advice.

Patients could save money on generics because drug pricing used to follow a fairly predictable path. Drugs were expensive when first introduced and under patent. They became less expensive once the patent expired and generic versions were introduced. When there were more generic versions and a little time had passed, drugs often became very inexpensive, with the price drifting down as more and more generics (and new patented competitors) hit the market.

The word “market” should be underscored here, because drug prices (as opposed to most of the rest of healthcare costs) usually followed the laws of supply and demand. More versions of the same kind of drug usually meant lower prices, and for treatable common conditions—think hypertension, diabetes, and the like—there were usually several very cheap generic drugs available, even for literally pennies a day. Also, large US pharmacy chains, such as Walmart and Target, sold high volume generics as loss leaders, trying to outdo each other with advertised lists of generics priced at $5 or less for a 30 day supply. Insurance companies incentivized their policyholders (and doctors) to use generic drugs by refusing to pay for, or making it difficult to prescribe, brand name drugs when a generic version was available.

Perfect storm

Likely as a result of all of this, the growth of US drug spending moderated in the early years of this century, for the first time in decades.2 And because drugs, despite their high visibility, are not a huge proportion of US healthcare costs (roughly 10-12%), all was quiet in generic pharmaville.

This quiet seems to have ended recently, however, with dramatic and publicized price hikes for some well known (and some less known) generic drugs. Many of the reasons for these increases are related to supply and demand, usually caused by a decrease in market competition. Demand drops for older drugs, companies stop making them, and only one or two manufacturers remain. Then there is a safety recall or a manufacturing problem, and suddenly there is not enough of a drug to go around. Such was the case with such common, old fashioned generic drugs as digoxin and doxycycline, both of whose prices have shot up in recent years.3

But it seems that generic drug companies are now actively trolling for little used but still necessary drugs to market in a new way. Take the example of albendazole, as outlined by Alpern and colleagues last year.3 Long off patent, albendazole was one of two broad spectrum antiparasitic drugs on the US market (the other was mebendazole). A small drug company named Amedra purchased US distribution rights to albendazole from the drug’s developer, GlaxoSmithKline (GSK). At around the same time the manufacturer of mebendazole discontinued the drug for business reasons, and US authorities started requiring increased treatment of immigrants for parasites. Bingo, a perfect storm: increased demand and a near monopoly of supply. Amedra increased the price of a daily dose of generic albendazole from around $6 in 2010 to almost $120 in 2013, for a generic drug. Needless to say, many of the people who need to take albendazole are poor immigrants who don’t have much money and usually don’t have health insurance that will pay drug costs.

Turing scandal

Which brings us to the most brazen and well publicized generic drug pricing scandal, still unfolding as I write: the case of pyrimethamine and Turing Pharmaceuticals,4 first brought to widespread public attention by the New York Times.5 Pyrimethamine, long out of patent, is the preferred drug to treat toxoplasmosis, a disease seen mainly in pregnant women, their babies, and patients infected with HIV. Developed and still manufactured by GSK, the right to sell pyrimethamine in the US passed through several small companies recently until being purchased by Turing this August. Turing immediately raised the price to $750 a tablet from $13.50. Since the drug is used for six weeks at full strength and then continued at a lower dose for maintenance therapy, this creates quite a windfall for the company.

But why wouldn’t these higher prices lead other generic manufacturers to jump in? Turing has thought of that, and it (and its immediate predecessor) restricted access to the drug so there is not a lot of it around to purchase to synthesize a copy. If you need pyrimethamine, you can’t find it at your pharmacy. It has to come straight from the manufacturer. Clever.

This and other cases of generic drug price increases have, of course, become a political football, with Congressional investigations and attacks by presidential candidates.6 7 But the fact remains that, under our system, it is perfectly legal for a company that has an effective monopoly on a drug to charge whatever it pleases for it. The Turing case likely won’t be the last example of this type of clever, if predatory, pricing.8

Notes

Cite this as: BMJ 2015;351:h5329

Footnotes

References

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