Dec 21, 2018

Why the spotlight on generic drug prices is getting brighter

Illustration: Sarah Grillo/Axios

Generic drugs are America's solution to high branded drug prices, but recent events have raised the question of whether the generics market is working the way it's supposed to.

Between the lines: Sometimes competition does fail, and generic drug prices become too high, experts say. But at the same time, some generic drugmakers struggle to turn a profit in the market because prices are so low, complicating the narrative.

The big picture: When the generic market works as intended, it drives drug prices down — potentially so low that manufacturers leave the market. But if there isn't enough competition, which happens for various reasons, prices can be high.

  • Both generic and brand drugmakers "charge whatever price they can get away with," former Democratic Rep. Henry Waxman said.
  • But while generics made up 90% of filled prescriptions in 2017, they accounted for only 23% of total drug spending.

Driving the news: What began as an antitrust lawsuit over two drugs has expanded into an investigation into alleged price-fixing involving at least 16 companies and 300 drugs, the Washington Post reported earlier this month.

  • This week, Sen. Elizabeth Warren introduced a bill that would allow the U.S. government to create generics under specific circumstances when competition is lacking.
  • “With generic drug market failures increasingly prevalent, consumers are suffering from price gouging and essential drug shortages," said Public Citizen President Robert Weissman in a statement of support for the Warren bill.
  • While there's agreement that competition can fail within the generics market, Warren's solution drew plenty of criticism. "In cases of regulatory failure, the solution isn’t to have the government start making drugs, it is to fix the regulatory problem," said the American Enterprise Institute's Ben Ippolito.

The other side: "For the most part, there’s so much competition that the sustainability of the industry is at risk. In some circumstances, there may be cases where there’s only one or maybe two competitors," said Jeff Francer of the Association for Accessible Medicines, the generic industry trade group.

  • The FDA is currently targeting areas with limited generic competition, speeding up approvals of competitors and encouraging new competitors to come into those spaces.
  • The issues of high prices and market sustainability are related; if there is a shortage of a drug, or if competition is reduced after a drugmaker exits a market, this can drive up prices.

Enhancing generic competition is the cornerstone of the GOP plan to reduce drug prices.

  • "The most obvious element of a more competitive pharmaceutical marketplace is simply more options for patients, especially generic options," said HHS Sec. Alex Azar earlier this year. He cited an FDA analysis that found that three competitors — or the second generic entrant to a market — cuts the original price of a drug in half.
  • But there are also situations in which creating competitive markets can be difficult or slow, said Rachel Sachs, a law professor at Washington University. Examples include when a drug is difficult to make or when only a small population needs a drug.

The bottom line: High generic drug prices almost always stem from a lack of competition, but what drives this lack of competition can vary.

  • "One of the positive things about [Warren's] it doesn’t take a position on which of those is the driver," Sachs said. "It’s looking at what is the amount of the competition in the market, and is that causing a problem for patient access.”
  • Government manufacturing of generic drugs is one solution that's not going anywhere any time soon, but another idea with more traction is non-profit manufacturers.

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