Blockbuster Drug Prices to Plummet as Patents Run Out

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Patients will be paying less for the their medicines as seven of the world's most popular drugs turn generic, including cholesterol fighter Lipitor, blood thinner Plavix and anti-depressant LexaPro. In the next four years, blockbuster drugs with annual sales of about $255 billion will go off patent, providing cost savings and increasing the accessibility of health benefits to patients.

According to a report by the Associated Press, top drugs getting generic competition by September 2012 are taken by millions every day: Lipitor alone is taken by about 4.3 million Americans and Plavix by 1.4 million. Generic versions of big-selling drugs for blood pressure, asthma, diabetes, depression, high triglycerides, HIV and bipolar disorder also are coming by then.

"My estimation is at least 15 percent of the population is currently using one of the drugs whose patents will expire in 2011 or 2012," says Joel Owerbach, chief pharmacy officer for Excellus Blue Cross Blue Shield, which serves most of upstate New York.

Those patients, along with businesses and taxpayers who help pay for prescription drugs through corporate and government prescription plans, collectively will save a fortune. That's because generic drugs typically cost 20 percent to 80 percent less than the brand names.

Doctors hope the lower prices will significantly reduce the number of people jeopardizing their health because they can't afford medicines they need. Generic medicines are chemically equivalent to the original brand-name drugs and work just as well for nearly all patients.

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

In the 1990s, big pharmaceutical companies were wildly successful at creating pills that millions of people take every day for long-term conditions, from heart disease and diabetes to osteoporosis and chronic pain. The drugs are enormously profitable compared with drugs that are prescribed for short-term ailments.

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.

Drug companies have received U.S. approval for 20 drugs this year and expect approval for other important ones the next few years. Eventually, those 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. Typically, they raise prices 20 percent or more in the final years before generics hit to maximize revenue. Some also contract with generic drugmakers for "authorized generics," which give the brand-name company a portion of the generic sales.

Brand-name companies also are trimming research budgets, partnering with other companies to share drug development costs and shifting more manufacturing and patient testing to low-cost countries.

As the proportion of prescriptions filled with generic drugs jumped to 78 percent in 2010, from 57 percent in 2004, annual increases in prescription drug spending slowed, to just 4 percent in 2010. According to the Generic Pharmaceutical Association, generics saved the U.S. health care system more than $824 billion from 2000 through 2009, and now save about $1 billion every three days.

In addition, many patients taking a particular brand-name drug will defect when a slightly older rival in the same class goes generic.

Global sales of Lipitor peaked at $12.9 billion in 2006, the year Zocor, an older drug in the statin class that reduces bad cholesterol, went generic. Lipitor sales then declined slowly but steadily to about $10.7 billion last year. That still will make Lipitor the biggest drug to go generic.