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Drug prices to plummet as patents expire

By Linda A. Johnson

Associated Press

Published: Sunday, July 24 2011 10:41 p.m. MDT

Average copayments last year were $6 for generics, compared with $24 for brand-name drugs given preferred status by an insurer and $35 for nonpreferred brands, according to IMS Health.

Among the drugs that recently went off patent, Protonix, for severe heartburn, now costs just $16 a month for the generic, versus about $170 for the brand name. And of the top sellers that soon will have competition, Lipitor retails for about $150 a month, Plavix costs almost $200 a month and blood pressure drug Diovan costs about $125 a month. For those with drug coverage, their out-of-pocket costs for each of those drugs could drop below $10 a month.

Jo Kelly, a retired social worker in Conklin, Mich., and her husband Ray, a retired railroad mechanic, each take Lipitor and two other brand-name medicines, plus some generic drugs. Both are 67, and they land in the Medicare prescription "doughnut hole," which means they must pay their drugs' full cost, by late summer or early fall each year. That pushes their monthly cost for Lipitor to about $95 each, and their combined monthly prescription cost to nearly $1,100.

Generic Lipitor should hit pharmacies Nov. 30 and cost them around $10 each a month.

"It would be a tremendous help for us financially," she says. "It would allow us to start going out to eat again."

For people with no prescription coverage, the coming savings on some drugs could be much bigger. Many discount retailers and grocery chains sell the most popular generics for $5 a month or less to draw in shoppers.

The impact of the coming wave of generics will be widespread — and swift.

Insurers use systems that make sure patients are switched to a generic the first day it's available. Many health plans require newly diagnosed patients to start out on generic medicines. And unless the doctor writes "brand only" on a prescription, if there's a generic available, that's almost always what the pharmacist dispenses.

"A blockbuster drug that goes off patent will lose 90 percent of its revenue within 24 months. I've seen it happen in 12 months," says Ben Weintraub, a research director at Wolters Kluwer Pharma Solutions.

The looming revenue drop is changing the economics of the industry.

In the 1990s, big pharmaceutical companies were wildly successful at creating pills that millions of people take every day for common conditions, from heart disease and diabetes to osteoporosis and chronic pain. Double-digit quarterly profit increases became norm.

But the patents on those blockbusters, which were filed years before the drugs went on sale, last for 20 years at most, and many expire soon.

In recent years, many drug companies have struggled to develop new blockbuster drugs, despite multibillion-dollar research budgets and more partnerships with scientists at universities and biotech companies. The dearth of successes, partly because the "easy" treatments have already been found, has turned the short-term prognosis for "big pharma" anemic.

"The profit dollars that companies used to reinvest in innovation are no longer going to be coming," warns Terry Hisey, life sciences leader at consultant Deloitte LLP's pharmaceutical consulting business. He says that raises "long-term concerns about the industry's ability to bring new medicines to market."

But pharmaceutical companies can save billions when they stop promoting drugs that have new generic rivals, and U.S. drug and biotech companies are still spending more than $65 billion a year on R&D.

The 20 new drug approvals in the U.S. this year, and other important ones expected in the next few years, eventually will help fill the revenue hole.

For now, brand-name drugmakers are scrambling to adjust for the billions in revenue that will soon be lost. Many raise prices 20 percent or more over the last couple years before generics hit to maximize revenue. Some contract with generic drugmakers for "authorized generics," which give the brand-name company a portion of the generic sales.

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