Media Clarifies Market Forces in Generic Medication Manufacturing

From the Lecture Series The Skeptic's Guide to Health, Medicine, and the Media

By Roy Benaroch, M.D., Emory University

A majority of the people do not have to take costly medications. Most of the medications that are prescribed are older and their patent protection has expired. This means that other companies can produce generic versions, with significantly lowers the costs. But it is not as simple as that. There are other market forces in play that make this straightforward point complicated.

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Off-patent drugs do not always end up being produced by generic companies. (Image: okskaz/Shutterstock)

Off-Patent Drugs

When it comes to prescription drug spending, market dynamics lead to unexpected or even bizarre results. For example, a headline from the Wall Street Journal about a 40-year-old medication read: ‘Cancer Drug Price Rises 1,400% With No Generic to Challenge It’. The name of the drug is Iomustine, which treats several kinds of life-threatening cancer.

According to the article, Bristol-Myers Squibb sold this drug for about $50 a capsule for years. Although it was costly, the patients and insurance companies were more than happy to pay the price because it would save their lives. Yet, the prices started to go further up when Bristol-Myers sold production rights to CordenPharma, who made a deal with a small startup in Miami called Nextsource to supply the drug to hospitals and pharmacies. As a result of this deal, the prices increased for 1,400%, with a single capsule now sold at $768.

According to a company representative, the pricing is set based on three factors: regulatory fees, product development costs, and the benefit delivered to patients. But the regulatory fees are fixed and the same as what the original company paid. Besides, product development costs were paid by the original company. However, a neuro-oncologist in the story calls the whole thing price gouging. The point is that although Iomustine is off-patent, the price is not reduced as only one company sells it. The price would decrease if there were competition overproducing it. The article states that in the US, 319 off-patent drugs are sold without any generic copies.

This is a transcript from the video series The Skeptic’s Guide to Health, Medicine, and the Media. Watch it now, on The Great Courses Plus.

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Market forces lead to bizarre results when it comes to pricing drugs. (Image: PopTika/Shutterstock)

Selling Generic Copies Made Impossible by Big Pharma

Although there are off-patent drugs ready to be sold by generics, it is not always this simple. Many barriers do not allow selling these medications. There are regulations to ensure the safety and purity of medicines. But it is far from that.

An interesting point in this regard was made in a story in the Wall Street Journal, ‘How Big Pharma Sandbags Generic Competition’. The article brings together related stories and gives a comprehensive review of the issue. The essay mentions some clever, sometimes unethical, ways to prevent generic companies from manufacturing off-patent drugs. For example, Allergan transferred the patents of its eye drop, Restasis, to the sovereign St. Regis Mohawk Tribe, and they openly stated that their goal was to prevent the patents from being revoked.

Another strategy is to force generic companies to buy large supplies of the drug to prove that their drug is the same as the original one. A company called Turing Pharmaceuticals made headlines by raising the price of a medication called Daraprim from $13 to $750. They had set a ‘limited distribution program’ for orders of the drug to go through, so all orders had to be individually approved by the company. This way, if a competitor requested a supply of the medication to run tests and compare them with their medications, Turing Pharmaceuticals would easily reject them. Without having the original drug, the generic company couldn’t prove their product was the same, so the drug can’t get approved for sale. According to the Wall Street Journal article, this strategy delayed the approval of 40 generic drugs, which cost the American health care system $5.4 billion.

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Delaying Tactics

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Brand-name companies use different tricks to prevent generics from entering the market. (Image: PopTika/Shutterstock)

Another ruse is that brand-name manufacturers can legally pay generic companies to delay entering the market. This way, they can maintain market exclusivity after the patent is expired. This agreement is known as ‘pay for delay’ and costs US consumers $3.5 billion a year.

Another trick concerns ‘citizen petitions’ allowed by the FDA to voice concerns about drug safety to regulatory bodies. But curiously, almost all of these petitions are filed by brand-name drug companies. They file these petitions just when patents expire to delay generic entry into the market.

According to these stories, these tricks show that loopholes can lead to increased prices, just as research and development costs do.

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Common Questions about Generic Medication Manufacturing

Q: How is drug pricing determined?

According to representatives of pharmaceutical companies, prices are set based on three factors: regulatory fees, product development costs, and the benefit delivered to patients. But other factors affect this price.

Q: What happens to a drug when the patent expires?

When the patent of a drug expires, generic companies are allowed to produce the drug. They have to prove that their drug is the same as the original one.

Q: What is mean by generic medicine?

Generic medicine, as opposed to patent medicine, refers to drugs with expired patents. They are copies of the patent medicine which are produced by other pharmaceutical companies.

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