Generic drugs are supposed to be cheap, so why has the price
of some generics risen a thousandfold or more? Blame the not-so-free market.
In October 2013, a month's supply of doxycycline, a widely
used antibiotic that has been available in generic form for three decades, cost
hospitals $1.20. Just six months later, it cost $111.00, an increase of 9,150
percent. In July 2013, a month of tetracycline, another antibiotic long
generically available, cost pharmacies $1.50, but a year later it was $257.70,
an increase of 17,080 percent. These are extreme instances, but they are not
aberrant.
According to Medicare and Medicaid data, from July 2013 to
July 2014, the price of half of all generics went up, and nearly 10 percent of
them went up by double or more. Among this 10 percent, the average increase was
448 percent. By remarkable coincidence, the most frequently prescribed generics
were among the more dramatic risers. One report found that in 2010, the 50 most
popular generics cost an average of $13.14 per prescription, but by 2014, it
was $62.10, a 373 percent spike.
Teva's share of the US generics market in recent years has
ranged from just 13 to 22 percent. Second-place Mylan has held a mere 8 to 13
percent. The four biggest generics manufacturers combined control only 40 to 50
percent. Those numbers don't have the ring of oligopoly, but the generic market
is different from most, chiefly because even the biggest manufacturers can make
only a modest fraction of the thousands of generic drugs in existence. Teva and
Mylan, for example, make 400 or so each, many overlapping. Other manufacturers
make but a few dozen. The industry as a whole may not be oligopolistic, but the
production of particular drugs most assuredly is.
Cephalon held the exclusive patent to modafinil and had been
selling it since 1998, but the patent was set to expire in 2006. Teva wanted a
piece of the action when it did expire. Cephalon, however, wasn't ready to give
up its monopoly, so in 2005 and 2006, it paid more than $300 million to Teva
and three other makers of generics to stay out of the market until 2012. Generic
firms love "pay to delay" deals, as they are known in the trade,
because of the guaranteed profit. Name-brand firms of course love the extension
of their monopoly. After buying off its competitors, Cephalon's profits on
Provigil took on a fleece-like texture. In 2005, when the first deal was
struck, annual US sales of the drug were $475 million. Just two years later,
they topped $800 million. By 2011, the last full year of Cephalon's monopoly,
they reached $1.1 billion. In 2004, a month's supply of Provigil cost about
$166 (drug prices vary from pharmacy to pharmacy), but by 2007 it was $272, by
2009 it was $409, and by the last year of Cephalon's patent in 2012 it was
$1,001. The gross take - an altogether apt phrase - during the extra years of
Provigil's monopoly came to about $5 billion, not a shabby return on $300
million in baksheesh to the generic companies.
Another trick of the pharma trade as a drug approaches the
patent cliff is to develop a new drug to replace the old one, often by making
the merest of tweaks, like putting an extended-release coating on an
immediate-release tablet. Sometimes the benefits are more substantial, but even
then they may be outweighed by new side effects or may be helpful only to a
small subpopulation of patients. Regardless, the drug maker will tout its new
pill - often spending millions, even tens of millions, to herald its
improvements (and minimize its flaws) - and a lot of doctors and patients will
be swayed. Those who aren't swayed may migrate to the new drug anyway because
the price of the old one has been jacked up so high, as Cephalon did with
Provigil, that even the new drug is a bargain. The value of all this is not
just the short-term profiteering but getting a base of doctors and patients
hooked on the new drug before the old one turns generic. Most doctors and
patients don't care to fix what ain't broke, so if the new drug works OK,
they're less likely to use the old drug even after it goes generic and its
price plummets. This was essentially Cephalon's strategy for Provigil and its
lightly tweaked replacement, Nuvigil. Trouble was, in 2005, Cephalon was
running behind in getting FDA approval for Nuvigil. By buying off Teva and the
rest, Cephalon was buying time to get the drug approved and market it to
doctors and patients. Nuvigil finally arrived in pharmacies in mid-2009 (priced
at $269 a month, compared to Provigil's jacked-up $409) and grossed $39 million
over the remainder of the year. By 2012, when Provigil went generic, annual
sales of Nuvigil had reached $437 million. In all, Cephalon took $1 billion
from Nuvigil during the extra years of its Provigil monopoly and along the way
established a solid base of doctors and patients from which to wring future
profits.
What happened to modafinil after Provigil went generic in
2012 is emblematic. By the end of that year, things looked good for consumers:
a month's supply of modafinil dropped from Provigil's larcenous peak of $1,101
to as low as $5. But the descent was ephemeral. Only months later, the price
soared to more than $1,200 - seven times the true value of even name-brand
Provigil (if you take as its true value the cost, $166, before Cephalon made
the pay-for-delay deals and started hiking up Provigil's price). The price has
since dropped again, but only from the stratospheric to the tropospheric. In Boulder,
Colorado, the lowest advertised price for the most common dose was $706. Even
in more competitive precincts - lower Manhattan and downtown San Francisco, for
example - the cost was $520. Big Generic has yet to offer an explanation for
the prices, but surely it is no coincidence that when prices reached their
nadir in 2012, more manufacturers seem to have sold generic modafinil than sell
it today.
Under the most basic Obamacare plan, the average copayment
for generic drugs is 32 percent, which would leave the patient who has a $700
modafinil prescription stuck paying $224 out of pocket each month, nearly
$2,700 a year. (Out-of-pocket costs aren't capped until $6,600 for an
individual and $13,200 for a family.) This is in addition to the plan's annual
premium, which, depending on one's age, health, income and state of residence,
runs from $1,000 to $8,000.
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