Savings Ahead in Generic Medicines
Consumers stand to save billions of dollars in prescription drug costs in the next few years as an unprecedented wave of expensive brand-name medications come off patent, facing competition from far-cheaper generic versions.
Four of the nation’s 10 best-selling prescription medicines -- treating common ailments ranging from high cholesterol to asthma -- are due to lose patent protection starting this year through 2010. Never have so many branded drugs, with annual sales of as much as $75 billion, lost their patents in so short a time, experts say.
The savings for consumers could be enormous. Unlike hospital or doctor care, which is expensive but paid mostly by health insurance, patients pay a relatively higher share of prescription drug costs out of their own pockets. The high cost of brand-name drugs has driven many Americans to import less-expensive versions from Canada and other nations.
Generics can cost as much as 80% less than their branded versions. General Motors Corp., for example, said employees in its prescription drug plan are paying 90 cents a pill for the generic version of cholesterol-lowering Zocor, which lost its patent last month, compared with as much as $4.50 for the branded version.
Users of rival cholesterol-fighter Lipitor, the nation’s top-selling prescription medication whose patent doesn’t expire until 2011, could also save by switching to generic Zocor.
The generic versions generally offer no loss in quality and effectiveness, medical experts say.
“For the vast majority of patients, generics work just like the brand drugs,” said Debra R. Judelson, a Beverly Hills cardiologist.
Phyllis Gottlieb, one of Judelson’s patients, is enjoying significant savings with generics. The 71-year-old retired Westside resident uses five prescription drugs, including medicines for high blood pressure and arthritis. She said she chooses generics whenever possible, and they help keep her monthly prescription tab under $100.
“The price of some brand drugs is absolutely phenomenal,” Gottlieb said. “And I am insured. I am paying $50 at the cash register, and someone next to me is paying $200.”
Generic drugs have been around for decades. Their share of prescriptions filled has grown steadily over the years, accounting for just over half of all prescription drugs sold today versus a quarter two decades ago. That share could rise beyond 60% by the end of next year, said Ron Fontanetta, a healthcare specialist at Towers Perrin, a human resources consulting firm.
The surge in generics stems from an innovation boom in the early 1990s, when giant companies such as Merck & Co. and Pfizer Inc. launched a series of blockbuster medicines.
By law, patents last about 20 years, but companies spend many of those years testing and getting government approval for their new drugs. The creators are typically left with between 12 and 14 years of exclusive rights to sell the drugs, usually at high prices, to recoup the enormous cost of developing them.
Many of those patents from the ‘90s innovation wave are now expiring.
A few days after Merck’s cholesterol-fighting Zocor, the nation’s No. 2-selling prescription drug, lost its patent last month, the patent expired on Pfizer’s anti-depressant Zoloft, ranked No. 7. The patent for Pfizer’s high blood pressure medicine Norvasc expires next year. Advair, GlaxoSmithKline’s asthma fighter, loses its patent in 2008.
Express Scripts Inc., one of the country’s largest managers of pharmacy health benefits, estimates the potential savings from generics this year alone at $24.7 billion.
That is unlikely to make a major dent in the country’s escalating $2.6-trillion healthcare bill. Prescription drugs represent a relatively small portion of the bill -- 10%, compared with 30% for hospitals and 21% for physician services.
But for many individuals’ health budgets, the savings can be huge. Patients with health insurance pay as much as a quarter of prescription drug costs out of their own pockets, compared with 20% for dental, 16% for physician services and 7% for hospitals.
How much consumers will save depends on how aggressively health plans and care providers steer patients to generics.
The growing competition from generics is driving some brand-drug makers to aggressively guard their market shares. Consumer advocates say that the tactics could stifle competition from generics.
Some brand makers use “authorized generics” to compete against their generic rivals. Authorized generics are either licensed or manufactured by the brand makers and are essentially the brand drug in a different bottle.
Merck introduced an authorized generic version of Zocor last month. Pfizer said it will introduce a generic Zoloft as soon as a rival firm begins selling a non-branded version later this year.
Merck also offered to slash Zocor’s price for some large health plans before its patent expired, a move that consumer advocates and some lawmakers labeled as anti-competitive.
The brand makers say they are not trying to undermine competition from generics. To the contrary, they are spurring it.
“We are acting like any rational business would act when faced with similar circumstances,” said Amy Rose, a Merck spokeswoman.
But critics charge that even though such tactics bring prices down in the short run, they are designed to discourage generics from entering the market in the long run.
“You don’t see Apple [Computer Inc.] selling knockoffs of iPods because it is not in their interest to undermine the value of their product,” said David A. Balto, a former Federal Trade Commission official and a Washington attorney representing generic makers and drug buyers. “The pharmaceutical companies are only making authorized generics because their long-term strategy is to keep the real generic makers at bay.”
The FTC is studying the impact of authorized generics. Sen. Charles E. Schumer (D-N.Y.) has called for an investigation of Merck’s price-slashing on Zocor.
Federal officials are concerned that brand makers may be using other tactics as well, including unfairly delaying Food and Drug Administration approval of generics.
The FDA says it has seen a significant increase in the number of citizen petitions in recent years. The petitions, which can be filed by any member of the public, are used to raise scientific and safety concerns about drugs being reviewed by the agency, including generics.
The agency said it cannot draw any conclusions about the rise in the numbers, but its chief counsel, Sheldon Bradshaw, told a gathering of generic manufacturers last year that the petitions are possibly being used as a delay tactic.
Still, few are predicting the demise of the generics industry. Israel’s Teva Pharmaceutical Industries Ltd., the world’s largest generics manufacturer, makes generic Zocor and will soon introduce generic Zoloft. Teva officials declined to be interviewed for this article.
The brand makers will continue to aggressively guard their best sellers, experts say, and ultimately their core business will continue to be the development of new drugs.
Pfizer, for example, has 150 new drugs under development. Its latest products hitting the market include Lyrica, an epilepsy medicine introduced last year, and Sutent, a cancer treatment that won FDA approval earlier this year.
As opportunities for blockbuster-type drugs that reach broad patient groups wane in the coming years, new products are likely to tackle relatively rarer diseases such as cancer, rheumatoid arthritis, hemophilia and others, said Towers Perrin consultant Fontanetta.
These drugs will be harder to copy because they will be much more complex, Fontanetta said. “And, you will see, they will be priced much higher.”
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High numbers at stake
Some of the best-selling prescription drugs in the country are losing their patents before the end of the decade.
*--* Year to go ’05 sales Drug (Maker) Used for: off patent (In billions) Prevacid (Tap Heartburn 2009 $3.3 Pharmaceutical) Zocor (Merck) High cholesterol 2006 3.1 Advair (GlaxoSmithKline) Asthma 2008 2.8 Zoloft (Pfizer) Antidepressant 2006 2.6 Effexor/XR (Wyeth) Antidepressant 2008 2.2 Norvasc (Pfizer) Hypertension 2007 2.0 Ambien (Sanofi Aventis) Sleeping aid 2007 1.9 Lexapro (Forest Antidepressant 2009 1.8 Laboratories) Risperdal (Janssen Bipolar disorder 2008 1.5 Pharmaceutica) Fosamax (Merck) Osteoporosis 2008 1.5 Zyrtec (Pfizer) Allergies 2007 1.4 Pravachol (Bristol-Myers High cholesterol 2006 1.3 Squibb) Topamax (Ortho-McNeil Migraines 2009 1.3 Neurologics) Abilify (Bristol-Myers Bipolar disorder 2010 1.1 Squibb) Flonase (GlaxoSmithKline) Allergies 2006 1.0 Cozaar/Hyzaar (Merck) Hypertension 2010 1.0
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Source: Express Scripts Inc.
