One of the few things that most politicians in this country seem to agree on is that generic drugs are terrific and we should have more of them. FDA Commissioner Scott Gottlieb released a statement this week: “A robust pathway for generic competition is critical to expanding drug access and promoting public health.” Senator Elizabeth Warren is so committed to the idea that she is proposing that the U.S. government should start manufacturing generics.
It is easy to see why people like generic pharmaceuticals: they are cheap. When the patent on a typical drug expires, competitors rush to the market with identical products and prices, not surprisingly, fall. Pfizer’s atorvastatin (Lipitor), for example, lost patent protection in 2011 and is now available for only a few cents per pill.
Generic drugs make up 89% of total prescriptions in the U.S. but account for only 26% of pharmaceutical spending.
One way to reduce healthcare costs, it seems, is to simply expand generics.
Unfortunately, generics drugs are not the easy solution that they seem to be. Even if you set aside the question of innovation and incentives, the world of generic drugs is troubled.
The core problem with generic drugs is that they generate little profit. In the U.S. market, pharmacies are allowed to quickly move from one generic manufacturer to the next. If a company making generic methylphenidate (Ritalin) raises the price a bit, pharmacies can switch to a different manufacturer and not inform the patient. The drug looks exactly the same, with the same packaging. This dynamic drives down prices and reduces profitability.
The problem is that when you reduce profitability you create all sorts of other problems. One issue is that companies don’t invest in capacity. A firm making a product with little profit won’t build new production facilities; it would not make financial sense. According to the FDA, the issue of drug shortages is getting worse. This is one of the reasons why Elizabeth Warren and others want the government to start manufacturing generics: companies trying to make a profit have no incentive.
Another issue is that firms don’t invest in patient support programs. Many drugs are complicated to take, often with challenging side-effects. Most pharma companies have robust patient support programs; if someone has a question about a particular drug, they can easily get in touch with a nurse or counselor. Some firms have apps and on-line monitoring systems, and personal connections with each patient. Generic manufacturers do not have these sorts of programs for the simple reason that there is no financial return. Why invest in a patient support program for a product with no profits?
Generic drug manufactures also don’t invest in marketing efforts, to patients or physicians. You don’t see ads for Prozac or Lipitor because there is no justification. There are no drug reps promoting simvastatin (Zocor) or alendronate (Fosamax). The result is that patients don’t request generic drugs, and physicians don’t always think of them.
Perhaps the most disturbing impact of generic drugs is that there are few clinical trials. A company isn’t going to invest in a $50 or $100 million clinical trial for a drug that has lost patent protection since there would be no possible way to recoup the investment. This is an enormous missed opportunity. Could Zoloft, Boniva, or Cymbalta have other uses? Perhaps. But we will never know.
The U.S. needs a new approach to generic pharmaceuticals. The high cost of new molecules gets considerable attention. Perhaps a more interesting question, however, is how best to manage older products and ensure that companies have an incentive to invest in them. Allowing companies to differentiate these products and build brands – as over-the-counter drugs like Tylenol do today – is one idea to consider.
I believe something to think is also the switch between one generic and the other. Usually the generic proves bioquivalence with one brand, but not with another generic. Because they are bioquivalent to the original brand we assume that they are bioquivalent to each other. Hopefully they are, but there’s no data to say.
There are some great points in this article. I believe there are a few more problems hidden just below the surface of these waters. One is quality control. A generic is only required to have a percentage of the active ingredient found in the branded drug, so while it may be efficacious, the potency may vary as pharmacies switch suppliers based on cost alone. Generic manufacturers don’t invest in product development or manufacturing, but they invest a lot in lawyers. They spend millions to attack branded pharma company patents. It is usually a gamble (ambulance chasing), but if they win they get exclusivity for a period of time, which allows them to reap large profits without investing in medical research, patient support, or anything else that brings benefit to patients and providers. As far as costs, as mentioned by Todd (above), the price of branded medicine is what funds research. Tuft’s university has document the cost to bring a product to market in excess of $1B, and many products never recover that cost for the company in the market. It is the few blockbuster drugs that fund everything. When government stifles pharma from profit from it’s investment, the whole world suffers. It is true that most of the world pays less for drugs, but most of the world is not as wealthy either. Also, government mandated pricing not only kills the free market system, it is also not as beneficial to the masses as suggested. Let’s use the Canada example that Todd raised…there have only be 2 breakthroughs since I was born in 1961. https://globalnews.ca/news/3496099/8-medical-breakthroughs-canadians-should-be-proud-of/ As far as cost and access, well, I’ll let you read that the government of Canada says (https://www.canada.ca/en/health-canada/services/health-care-system/pharmaceuticals/access-insurance-coverage-prescription-medicines.html) and you can decide if that’s the system you want Elizabeth Warren and others high-minded politicians think is best for us. (By the way Elizabeth Warren had a net worth of $7.8M in 2015 and has the best government-paid healthcare coverage, so I doubt she can empathize with most Americans.) That’s my 2¢.
Hmmm… I’m always in favor of companies being able to build brands and increase consumer utility. Money attracts brains, so profit is a must. #1) But as the father of a type 1 diabetic, I know the price of insulin is $400 per month in the US and less than $50 in Canada. The amount of market-pressure I can apply on Novonordisk is insufficient, so I reluctantly support generics or (gulp) regulations.
Thanks for the thoughtful article. It’s obviously an important topic.