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Some Interesting Insights into the Use of Generic Drugs

Posted Aug 02 2011 12:00am

We are obviously in an era in which most drug prescriptions will default to a generic product when available. A recent article discussed how drug prices are about to plummet on the basis of expiring pharmaceutical company patents. Most, if not all, of these patent-protected drugs will be replaced by generic equivalents (see: Drug prices to plummet in wave of expiring patents ). Included in the article were some fascinating facts about generic drugs. Below is an excerpt from it:

The cost of prescription medicines used by millions of people every day is about to plummet. The next 14 months will bring generic versions of seven of the world's 20 best-selling drugs, including the top two: cholesterol fighter Lipitor and blood thinner Plavix....Between now and 2016, blockbusters with about $255 billion in global annual sales are set to go off patent....Generic competition will decimate sales of the brand-name drugs and slash the cost to patients and companies that provide health benefits....The flood of generics will continue for the next decade or so, as about 120 brand-name prescription drugs lose market exclusivity....When a drug loses patent protection, often only one generic version is on sale for the first six months, so the price falls a little bit initially. Then, several other generic makers typically jump in, driving prices down dramatically....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....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....For those with drug coverage, their out-of-pocket costs for each of those drugs could drop below $10 a month,,,,Generic Lipitor should hit pharmacies Nov. 30 and cost them around $10 each a month....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....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....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....[G]enerics saved the U.S. health care system more than $824 billion from 2000 through 2009, and now save about $1 billion every three days.

All of the above is obviously good news for Teva Pharmaceuticals USA which is the leading supplier of generic drugs in the country. This shift from prescription drugs to generics also comes at an opportune time for the federal government which is struggling to come to terms with a huge federal deficit. I was astonished to learn in the article that the use of generic drugs saves the the U.S. health care system "about $1 billion every three days." Obviously, the federal government is the dominant payer within our health system.

I was about to launch into a cautionary note regarding the broad use of generics in this country. The major point would have been that this shift to generics could cause problems in terms of drug development as Big Pharma continues to hemorrhage profits and retracts further from its R&D efforts. The following thought then occurred to me. If Big Pharma's R&D efforts had been successful in recent years, the industry would not be facing its current predicament.

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