Albert I. Wertheimer, Ph.D., professor of pharmacy administration at Temple University School of Pharmacy, and Patricia J. Bush, Ph.D., professor emeritus at Georgetown University School of Medicine, are co-authors of "Your Drugs & Sex: How Prescription & Non-Prescription Drugs Can Affect Your Sex Life."
Q. What's going on with drug prices?
A.The EpiPen headlines are only the latest in a trail of awkward situations for medicine makers who are aggressive about very large price increases. It follows the scandal at Turing Pharmaceuticals, and a similar strategy at Valiant Pharmaceuticals, and surely the EpiPen news will not be the last we will learn about. Why this is happening is simply answered: because the government does not regulate drug prices as is done in most other developed nations around the world. So, prices go up because the companies are free to set their own prices, at will.
Until about 10 years ago, the common knowledge on the street was that brand-name drugs were a bit expensive but that generic versions, if available, were much, much cheaper. While most of that statement is true today, things have gotten complicated and all prices have gone way, way up.
Let's look at the various components of this issue and we'll start with brand-name drugs. These are usually the result of corporate research and enormous investment, frequently for more than a decade. The pharmaceutical company has to recoup its investment within the first 21/2 to 3 years, before similar products reach the market from competing companies. That price must cover the research and development for that product, but also the work that went into products that flamed out and never went to market. Many of these products, especially for chronic diseases, sell for around $600 for 90 tablets or capsules.
Next, let's look at the generic versions, which are permitted after the originator's patent expires. Patent life used to be 17 years but was raised to 20 years in the 1990s to be the same as in the European Union. The U.S. Food and Drug Administration allows the first generic product approved to have a 180-day exclusivity period. Typically, if the branded product sells (wholesale from the manufacturer) for $600, this first generic will sell at a 20 percent discount, or at about $480. The fun begins after 180 days, when perhaps a dozen or so other generic manufacturers join the fray. Now the price falls like the proverbial lead balloon, reaching $200 to $300 a bottle (and sometimes less) after several months. At those prices, most of the newcomers drop out of the market because they could not make a satisfactory profit.
After a year has passed there may be one to three survivors on the market. This situation becomes what economists call an oligopoly, when there are only a few sellers. Let's say the bottle price is $200. One seller will raise the price to $250 and the others will follow, also charging $250. In an oligopoly situation, there are no price wars or sales. Here's why: First of all, let's assume the drug is for diabetes. Even though it's a common condition, there are only so many diabetic people, so a price decrease would not bring in more buyers. Lowering the price would only mean lower profits, hardly an incentive.
The other interesting area is biosimilars. These are copies of biotechnology drugs that have huge, complicated molecular structures. A biosimilar is somewhat like a generic equivalent in that it has the same medical effect on the body, but perhaps only 85 percent to 95 percent of the molecule is identical to the originator product. Still, it's enough to obtain the desired treatment. We will see biosimilars available for insulins, human-growth hormone, agents that stimulate white and red blood cell growth, and a number of others after the original drugs' patents expire. They are complicated to manufacture, and so far, the few biosimilars that are available save only 20 percent to 30 percent compared with the originator product. With more products entering the market in the future, these prices should be expected to decline a bit.
Branded or generic or biosimilar products, the U.S. government plays no role in pricing drugs. Health insurers or their pharmaceutical benefit managers negotiate with manufacturers to obtain the best prices possible for their plan members, a task made easier when there are multiple sellers competing with each other.