Pillhead

the personal views of a doctor in industry

Posts Tagged ‘branded generics

Growth in Prescription Drug Spending Lowest in 40 years

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The National Health Expenditure Accounts (NHEA) are the official estimates of total healthcare spending in the US.

The latest numbers show that the annual growth in spending on prescription drugs has been on a downward trend for since 1999. The highlights document notes that, “prescription drug spending growth decelerated in 2007, from 8.6 percent in 2006 to 4.9 percent in 2007”. The explanations for this falling trend are given as, “an increase in the generic dispensing rate, slower growth in prescription drug prices, and growing consumer safety concerns”.

Let’s take a look at these three explanations in turn:

The Growth in the Generic Prescription Rate

An article in NEJM (The Ongoing Regulation of Generic Drugs, 2007) gives a decent look at the regulation of generics in the US and also gives data for the proportion of prescriptions that are generic.

generic scripts

I was rather surprised to see how slowly the generic prescription rate is increasing. Over the last two years, 2006 and 2007, the rate of penetration has actually been slowing down.

This decreasing growth trend is obviously not a good explanation for the deceleration in spending of prescription drugs. In fact the trend is the exact opposite of the description given by the NHEA. Perhaps their other two explanations are more substantial.

The Price of Prescription Drugs

The United States Government Accountability Office (GAO) produced a report in 2007 examining trends in retail prices, described as usual and customary prices, which they defined as those prices that an individual without prescription drug coverage would pay at a retail pharmacy, (Prescription Drugs: Trends in Usual and Customary Prices for Drugs Frequently Used by Medicare and Non-Medicare Health Insurance Enrollees).

This analysis proved more difficult than would have been expected (after all the CPI covers drug prices). The authors wrote, “there is no easy to understand and reliably accurate information regarding the price of drugs paid by consumers”; their solution was to create the dataset themselves.

gao drug prices

The results (the nice graph is actually from the newsletter of the American Psychiatric Association) show that over the 7 years through 2006, branded drugs have increased in price by about 6% annually on a slight upwards trend, while generic drugs have been on a relatively flat/decreasing trend increasing by 1% annually. Unfortunately, there is no data here specifically for 2007, the year we are really interested in for this post. However, there is little reason to believe that the trend will dramatically shift in the other direction.

Growing Consumer Safety Concerns

This is an interesting explanation for the deceleration in spending on prescription drugs: people are spending less on drugs because they do not think that they are safe enough. This hypothesis is a can of worms waiting to happen, but let’s take a quick look.

Consumer concern comes from three sources: Drs, the media, and word of mouth. In many respects, these three are interlinked and feed into each other. This is a positive feedback loop with the ability to magnify concerns rapidly.

But there are only two independent sources of input into the system: scientific fact (in the form of clinical trial data), and the local regulatory agency (in the form of warnings, and label updates).

In the US, there is a potential problem because the regulator, the FDA, does not appear to be independent of the feedback loop. In some real sense, the FDA is an active party to the loop:

The FDA publishes a quarterly newsletter on the safety reports that it has received, “Potential Signals of Serious Risks/New Safety Information Identified from the Adverse Event Reporting System (AERS)“. The safety reports themselves are voluntary and generally lack much detail, but they do note a side effect, an identifiable person, and a drug that was being taken at the same time, eg a patient of mine called Mr Blogs complained of pain in his chest while taking drug x. These reports are useful in identifying rare events that may be linked to a drug, but that are so rare that they did not show up in the clinical registration trials, but they are hardly robust. A signal identified would mean that an association between a drug and a given side effect needs to be investigated further, and such signals by definition cannot apportion causality.

But with its public newsletter, the FDA does not identify signals needing further analysis. It identifies “potential” signals that may or may not require further analysis at some time in the future. This kind of crystal ball gazing is embarrasing at best and dangerous at worst. If people are discouraged for unscientific reasons from taking an effective medicine then the consequent morbidity and mortality that results is on the FDA’s hands.

So Which Explanation is the Best?

The generic prescription rate appears to be on a slowing growth trend lately and certainly does not appear to be influencing the deceleration in spending on prescription drugs.

It is possible that prescription drug price inflation slowed in 2007 but this is not immediately clear from the data publicly available. The trend was fairly stable and showed a slight upward trend from 200-2006.

While it is difficult to measure changes in consumer safety concerns, it would seem reasonable to believe that they had an effect to some degree in the US.  It is a little concerning that the FDA appears to be fanning the flames with its quarterly “potential” safety signal newsletters.

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Written by Pillhead

June 14, 2009 at 5:26 pm

Branded Generics, a Mug’s Game

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During the patent life of a drug, Big P must recoup its costs, cover its expenses and make some profit. Throughout those 10 years many of the normal rules of economics are suspended: our volume goes up and, in the absence of competition, our price goes up too (strangely in spite of massively higher volumes going through manufacturing, we do not appear to develop any competitive advantage in the manufacturing process, but that is another article).

And at the end of these happy years, we find that we have put a price umbrella over the market and in so doing we have literally built the market for generic competition to our drug.

Our response has been disappointing: branded generics (also called second brands).

While attempting to maintain the price of our premium branded drug, we launch a branded generic version closer to the generic competition’s price.

There is nothing wrong with pricing your product to different market segments, but the differential must be based on features which some are willing to pay extra for. In the drug business, all three of these drugs options are deemed by the regulators to be clinically the same.

We have a schizophrenic attitude to generic drugs. On the one hand we like them so much that we are selling them, while on the other we keep our original brand implying that there is some superiority. We then launch branded generic drugs which are somewhere in between. We never actually claim that brands are better than generics, we never claim that our generic is in any way less good than our brand.

There is no marketing angle for us in the current model.

You have to take your hat off to the brazen business of offering a drug to a person at one price, and essentially the same drug to a richer looking person at another.

We may learn to our chagrin that people do not like being thought of as mugs.

Written by Pillhead

June 10, 2009 at 3:22 pm