The rise of generic drugs causes skyrocketing name brand prices

Now that patents are expiring on blockbuster drugs, their prices are rising faster than ever as drugmakers scramble to make as much money as possible before generics drive prices down.
Written by Janet Fang, Contributor

Now that patents are expiring on blockbuster drugs, their prices are rising faster than ever, Reuters reports.

Drug manufacturers have an exclusive right to sell new products for up to 20 years from the date of their US patent filing. Once the patent expires, a number of generic copycats typically enter the market, driving down prices.

(This is what people are calling “the looming patent cliff.”)

Because of the increased number of drugs going generic, big companies profit more by increasing prices of their brand name drugs on the market.

$25.4 billion in US drug sales are at risk of generic competition this year, and another $26.1 billion in sales will lose patent protection next year.

According to Thomson Reuters MarketScan:

  • For the 15 bestselling drugs, prices rose faster in 2010 than in each of the last 5 years. Two-thirds of the drugs saw double-digit price hikes.
  • Payments for Pfizer’s cholesterol-reducing Lipitor rose 11.4% last year, compared with 5% annually from 2005 to 2010. The cost of a daily dose rose from $3.17 at the end of 2009 to $3.53 at the end of 2010. (Lipitor had 2010 global sales of $10.7 billion.)
  • AstraZeneca's antipsychotic drug Seroquel topped the list with a 16.5% price jump.
  • Drugs with price rises in the mid teens included: AstraZeneca’s cholesterol drug Crestor, Bristol Myers Squibb and Sanofi-Aventis’s blood-clot preventer Plavix, and Merck’s asthma treatment Singulair.

Insurers often get a discount – but the fact that they’re paying more for drugs is likely to push up the premiums they charge at a time when healthcare costs are already rising much faster than inflation.

According to IMS Health, the US healthcare system will reap at least $70 billion in savings over the next 4 years with lower-cost generic replacements. But until there's a generic competitor, there’s very little pushback on brand name prices.

While scrambling to make as much money as possible before their patents expire, drugmakers are also taking advantage of how last year's healthcare reform bill didn't cap drug prices.

Because the Affordable Care Act set no limits on drug prices, some experts say Medicare and what some have termed "Obamacare" are reasons for the higher rates of branded price inflation. Still, others blame the way drugmakers are paid and how consumers are reimbursed for pushing prices up.

In any case, drugmakers argue they need the revenue to pay for developing new medicines. Winning regulatory approval for a drug takes, on average, 15 years and $1 billion.

So they, of course, try to keep patent protection as long as possible. Earlier this month, the Supreme Court upheld a ruling that pharma companies can pay rivals to delay production of generic copies.

Via Reuters.

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