Why Generics May Be Getting a Lot More Expensive (Hint: Look to India)

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Tori Marsh
Tori Marsh, MPH, is on the Research Team at GoodRx, and is the resident expert on drug pricing and savings.
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Generic medications, which millions of Americans depend on for affordable treatment, may be getting a little more scarce – and, as a result, a good deal more expensive.

Leading generic drug makers in India, the home of global generic pharmaceutical manufacturing, have recently indicated that they plan to begin “optimizing” their pipelines by manufacturing fewer drugs, a strategy intended to reduce the number of competing products, and as a result, keep prices higher.

“We have the potential, the opportunity to really prune down our pipeline further, to focus on products where we can be in the first 2-3 players in the market and can get a return on our investment and ideally sustainable revenue margin potential,” Vinita Gupta, the CEO of Lupin Pharmaceuticals, told investors on a recent investor call. Lupin makes generic versions of popular drugs like amlodipine, doxycycline, and lisinopril. Gupta added: “We will definitely maintain the current level of spend, if not reduce it.”

Other generic makers have acknowledged a similar strategy, including Sun Pharmaceuticals (maker of diltiazem, clonazepam, and simvastatin) Cadila Healthcare (maker of atenolol, sildenafil, and alprazolam), and Cipla (maker of celecoxib, escitalopram, and finasteride). “I do not think we are going to file more than 20 products in a year,” Cipla managing director Umang Vohra told the Business Standard, a leading business publication in India. “Nowadays, in the US, you think you have a very good product but there are eight companies filing the product on day one and then there another five after that…So we will try and do less filings but focus on the ones that are a lot more complex.”

Though this shift has been reported recently in the Indian business press, it has gotten little to no attention in the U.S.

Generic medications make-up about 80% of the market, and generated $253 billion in savings in 2016. In recent years India has become the world’s largest manufacturer of generic drugs, accounting for about 40% of the U.S. generic market by volume. In the first half of 2017, Indian firms got about 40% of new U.S. approvals for generics, up from 35% just a year earlier, according to a Bloomberg analysis.

Brand name medications are protected by a patent, giving one manufacturer market exclusivity for a period of several years. Without competition, manufacturers can price the brand drug as they see fit. However, when a patent expires, competitors are free to manufacture the same drug and enter the marketplace with their own versions of the brand. These are known as generics.

Competition is the main reason generics are more affordable – as more manufacturers compete to sell their version of a generic drug, prices go down. In one study, the number of manufacturers of a generic medication was significantly correlated with the price of the drug. When a drug only had one generic version, the generic was only 13% percent less expensive than the brand version. But when the brand had three generic versions, the price dropped to 40% less expensive than the price of the brand name counterpart.

This has been great for patients. But with competition heating up, word that Indian manufacturers are changing strategy should come as a concern for both patients and their insurance companies, which are typically on the hook to pay for medications for their members.

Manufacturers are consolidating

Exactly how the supply of generics may change isn’t clear. Some manufacturers have indicated that they would not move away from their current portfolio, and only be more stringent in choosing to add other drugs going forward. Other Indian drug makers, however, indicated that their whole portfolio would be up for review.

In part, the greater selectivity reflects the upcoming pipeline of drugs losing patent protection, which includes popular drugs like Cialis, Lyrica, Proair, and Levitra. Some of the upcoming drugs are more complex medications to manufacture.

At the same time, there are bottom-line pressures for the companies. Yearly revenue has been dropping in recent years for some top generic pharmaceutical companies, leading many manufacturers to pursue consolidation through mergers and acquisitions. You might remember generic manufacturer Teva pharmaceuticals buying Allergan’s generics market in 2015, or Novartis setting its eye on generic manufacturer Amneal in 2016.

Amid dropping revenue, pharmaceutical companies turn to consolidation as a way to create new revenue sources or reduce costs. While good for profit, manufacturer consolidation can reduce competition and increase prices.

Generics are getting more expensive

Generic medications are already seeing some rise in prices above inflation. Every month the GoodRx reviews prices for the top 100 drugs that are more frequently prescribed in the U.S. This index, representing the full list prices at the pharmacy reveals that generics are getting more expensive, and have increased in price by 5% since February of last year – significantly higher than the 2017 inflation rate of 2.1%. To read this full report – see our post here.

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But it’s not all bad news.

Although it may look grim, there is hope.

Back in 2016, President Obama signed the 21st Century Cures Act to accelerate drug approvals in an effort to fund medical research and accelerate FDA approvals. Additional bills have also been introduced that could help curb generic price increases. The Increasing Competition in Pharmaceuticals Act aims to fast-track approvals for generic medications that are experiencing a shortage or have little competition. The CREATES (Creating and Restoring Equal Access to Equivalent Samples) Act has also been introduced, and if passed would increase the development and availability of generic medications. While neither of these has been passed yet, they could help to keep generic costs down.

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