Generic competition not a cure-all for high drug prices

Bringing more generic drugs to market is a critical component of lowering drug prices, but it is not a panacea, according to a new report.

The U.S. Food and Drug Administration has looked to increase generic competition as the primary lever to stem sky high drug prices. While the agency has succeeded in doing so, there's a ceiling on the ultimate impact of that plan, researchers from PricewaterhouseCoopers said.

Generic competition won't affect 46% of the estimated sales revenue of the top 100 drugs through 2023.

Relatively few blockbuster drugs are losing patent protection. Also, many new drugs are biologics that require biosimilar competition, which has its own set of hurdles, said Benjamin Isgur, who leads PwC's research institute.

"We are progressing in the right direction," he said. "But next, we need to see if we can start to make those inroads in the biologic and biosimilar pipeline as well. That will probably have the biggest influence on drug pricing over the next decade."

The FDA approved 763 abbreviated new drug applications in 2017, shattering 2016's record high by 112 approvals. The 2017 mark was 86.5% more than in fiscal 2014, the first full year the Generic Drug User Fee Act was in effect, according to the report.

Review times are significantly faster, thanks to increased staff and a priority review pathway. The extension of the FDA user fees translates to $493 million in funding for generic-drug program activities in fiscal 2018, up from $299 million in fiscal 2013. The FDA's review goal for abbreviated new drug applications can be as short as eight months, down from 15 months in 2016, PwC researchers found.

There is also a market exclusivity provision that offers six months of protection for new generic drugs in product areas that lack adequate competition.

This will be particularly helpful for sole-source drugs. PwC analyzed Medicare Part D, and found that 71% of drugs covered—2,009 in total—are made by just one manufacturer. Drug prices are cut in half when two manufacturers are producing a generic product, the FDA said.

"Our analysis is only tempering expectations in the sense of we have to have competition in sole-source drugs to really start bringing costs down," Isgur said.

But generic competition is held back by application quality and other factors, PwC said.

In 2017, just 15 of 100 generic drugs reviewed by the FDA were approved, on average. The remaining 85 were returned to manufacturers for additional information. Eighty percent of generics aren't approved on the first attempt.

Generic manufacturers need more informed staff and new commercialization capabilities to better promote their products, according to the report.

Also, there are just 15 blockbuster drugs ($1 billion-plus in annual sales) expected to lose patent protection from 2018 to 2021. Eleven will come off patent in 2022.

Biologic drugs are a primary driver of the pharmaceutical cost trend, which means better biosimilar competition is needed to bring costs down.

The FDA's Center for Drug Evaluation and Research approved 50 biologics from 2013 through 2017 compared with 28 from 2008 through 2012.

But the FDA has only approved 11 biosimilar products as of June 2018, and a mere three biosimilars are on the market.

The FDA has a role in terms of guidance, as do providers, Isgur said.

"Many doctors don't understand what biosimilars are," said Isgur, adding that the 55% of clinicians surveyed by PwC said they weren't familiar enough with biosimilars to prescribe them.

PwC recommended that biosimilar manufacturers should hire staff who could help boost physician knowledge and prescribing. Companies also should work with insurers to help biosimilar products get preferred placement on formularies.

Drug prices have gotten out of hand in part because drug manufacturers have virtually free rein in setting prices, which drive quarterly profits. The bulk of the yearly increases in drug pricing stem from specialty, branded manufacturers.

Consolidation among generic manufacturers, pharmacies and distributors combined with low margins and stronger quality regulations have also made it extremely tough to compete.

Market consolidation usually translates to higher prices, said David Henka, CEO and president of ActiveRadar, previously RxTE Health. While generic-drug prices have gone down over time, that dynamic could change given how relatively little attention is paid to generic price increases, he said.

"These companies are facile with pricing schedules and good at making money," Henka said. "Generic drugs are low-cost to begin with, so if a price doubles from $1.20 to $2.40 a pill, they typically get no push back."

Changing these systemic issues require buy-in from Congress and the entire pharmaceutical supply chain, industry observers said. Brand-drug manufacturers throw millions of dollars at lobbying efforts every year to protect its interests.

Providers have stepped in to try to change the paradigm. Intermountain Healthcare, Ascension, SSM Health and Trinity Health are working with the U.S. Veterans Affairs Department to pool their capital and form their own generic-drug company to combat shortages and rising drug prices.

"If the only way to provide our communities with affordable drugs is to produce them ourselves, then that is what we will do," Dr. Richard Gilfillan, CEO of Trinity Health, said in a statement.