Time to address price hikes in US generic drugs

26-Feb-2016

Finance

Generic drugs costs have climbed dramatically in recent years, hitting US patients and producers. Edward S. Price, PCI Synthesis, argues it’s time the increasing costs were addressed

Edward S. Price, President and CEO, PCI Synthesis

As with death and taxes, so it seems for rising drug costs, particularly in the United States. A frequently covered news story in 2015, rising drug costs are typically blamed on over-regulation by some and not enough regulation (and greed) by others. Either way, prescription-drug prices have risen by double digits for three consecutive years, according to Truveris, a digital health company aimed at lowering costs. According to the Wall Street Journal, ‘the prices of 19 brand name prescription drugs for skin conditions … increased more than 500% from 2009 to 2015.’

Despite US congressional hearings and calls for the US Food & Drug Administration (FDA) to investigate price gouging of medicines, prices will continue to rise in 2016

Those are shocking increases, yet despite US congressional hearings and calls for the US Food & Drug Administration (FDA) to investigate price gouging of medicines, prices will continue to rise in 2016.

This trend is not confined to brand name medications: generic drugs, although priced 80 to 85% less than brand name drugs, will also cost patients more this year. This could have significant impact because nearly 80% of prescriptions in the US are filled by generics.

Some of the price increase is due to difficult-to-change factors such as the time and investment necessary to bring ever more complex drugs, including generics, to market. However, another source of higher costs that could be addressed is rising fees from the Generic Drug User Fee Amendments of 2012 (GDUFA). For example, fees for Abbreviated New Drug Applications (ANDA) jumped from US$58,730 for fiscal year 2015 to $76,030 for fiscal year 2016, while Drug Master Files (DMFs) went from $26,720 to $42,170 over the same time period. That can be a significant burden for small manufacturers whose only product could be years from approval – and therefore from generating cash.

Another source of higher costs is increased oversight. Ensuring consistent quality control for facilities no matter where they are – in the US or in China, India or elsewhere – is important to protect patients, wherever they are located. But keeping in compliance with ever increasing, ever more complex regulations can be burdensome, requiring additional resources, regular training and time to consult with the FDA for the latest guidance. What is worse is that regulations may change from the time a project starts to when it is ready for approval – and that can mean going back and redoing all the paperwork necessary to meet new standards.

Higher GDUFA-related costs, along with other structural issues, have pushed smaller companies to either shut down or merge

Meanwhile, higher GDUFA-related costs, along with other structural issues, have pushed smaller companies to either shut down or merge. This wave of consolidation has reduced the number of companies developing generics and lowered manufacturing capabilities, which has led to fewer generic drugs, as well as a scarcity of approved generics, and that leads to higher prices.

There are a number of solutions that could address rising prices for generics:

• Change FDA policies that inhibit competitors from developing generics – for example, the so-called closed distribution loophole that allowed Turing Pharmaceutical’s Martin Shkreli to increase the per-pill price by 5,000% for Daraprim, the six-decade-old drug it had recently acquired. The closed distribution loophole enables companies to restrict access to distributors and pharmacies, which gave Shkreli a virtual monopoly because it prevented others from being able to reverse engineer and develop a generic alternative.
• Empower the FDA to respond to significant price hikes on off-patent drugs. By declaring a drug shortage, the FDA could respond either by fast-tracking a generic alternative or by allowing foreign drugs to be imported. Forbes recently noted that Glaxo sells Daraprim in the UK for $20 per pill compared with the $750 that Turing charged; letting in Glaxo’s version would have prevented Turing from price gouging.
• Make it easier for manufacturers to add capacity at another facility to alleviate scarcity. Currently, drug companies have to undergo a rigorous approval process to add a new facility to produce an already approved drug. Adding capacity at an additional facility, even temporarily, could require significant retrofits and other investments, which would preclude bringing more capacity online. Making it easier to add short-term capacity could fend off shortages, and keep prices at reasonable levels.
• Establish standards to allow generic producers and compounded-drug producers to copy drugs that have been off-patent for more than five years. Writing in the Wall Street Journal, Mark L. Baum, CEO of Imprimis Pharmaceuticals, said this policy would increase patients’ choices for safe and reasonably priced drugs.

There has been some discussion about suspending the Part D regulation that prohibits Medicare from negotiating directly with drug manufacturers – as other countries do – as a way to keep price hikes in line. But that suggestion has not received much support from the US Congress, in part because that approach could lower profits, which in turn would lead to a reduction in money available for R&D.

Nevertheless, the US needs to make some changes to put a lid on costs that lead to higher prices. At the very least, under the current system, because they generally pay significantly higher prices than in other countries, US patients are subsidising R&D and marketing costs for the rest of the world.