FTC: Authorized Generics Lead to Lower Prices

August 1, 2009

The Federal Trade Commission (FTC) is strongly backing the argument that the economy is better off with competing generic drugs. In “Authorized Generics: An Interim Report,” FTC analysts report that when 2 generics are on the market immediately after a patent on a branded drug expires, wholesale prices of the drug are 6.5% lower on average than when only 1 generic is available; retail prices are 4.2% lower on average.

The Federal Trade Commission (FTC) is strongly backing the argument that the economy is better off with competing generic drugs. In “Authorized Generics: An Interim Report,” FTC analysts report that when 2 generics are on the market immediately after a patent on a branded drug expires, wholesale prices of the drug are 6.5% lower on average than when only 1 generic is available; retail prices are 4.2% lower on average.

To encourage generics to enter the market as soon as possible, Congress in the Hatch- Waxman Act gave to the first generic firm entering the market a 180-day period of exclusivity during which no other generic manufacturer could sell the drug. However, that exclusivity does not apply to the patent owner, which can market “authorized generics” alongside its branded versions of the drug. When that happens, not only do prices go down, but so do the revenues of the first-to-file generic firm. FTC economists pegged that revenue decline as between 47% and 51% after an authorized generic becomes available. “The revenue effect for generic firms is much greater than the price decline for consumers mainly because the authorized generic represents a very close substitute for the conventional generic and typically gains significant market share at its expense,” the agency explained.

The answer many companies have hit on is a deal under which generic firms agree to defer their entry into the market in return for a commitment by the branded drug maker not to launch an authorized generic during the 180-day period of exclusivity. “Such agreements appear to be more common now than in the past,” the FTC found.

In June, the US Supreme Court declined to accept a case testing the legality of such arrangements, and legislation that would ban them has been introduced in both houses of Congress. The day before the release of the FTC report, Commission Chairman Jon Liebowitz, in a speech to the Center for American Progress, asserted that banning such “pay-for-delay” deals would save drug buyers $3.5 billion a year, of which approximately one-third would accrue to the federal government.

In the wake of the FTC report, the Obama administration’s Department of Justice weighed in, also opposing deals between branded and generic drug companies that stall generic introductions. In a brief filed July 6, it told the US Court of Appeals in New York that such agreements “should be presumed unlawful,” shifting the burden to the drug companies to prove that they are not unreasonably restraining competition. During the Bush administration, Justice Department antitrusters did not find such agreements in violation of the law. The Justice Department’s brief was a general policy statement and did not express an opinion on the specific case before the court: a challenge by pharmacy chains to the arrangement between Bayer and Barr Pharmaceuticals to delay introduction of a generic version of Cipro (ciprofloxacin).

Florida Moves to Monitor Rx Sales
There are 12 states that have no centralized prescription drug tracking system. Under a law that went into effect July 1, Florida is moving to take its name off that list. That statute requires that by December 1, 2010, the state will have set up an electronic database of prescriptions that is designed to spot cases in which a person goes from doctor to doctor getting multiple prescriptions for the same drug. The database is part of a broader effort to combat growing illicit use of legal drugs, particularly oxycodone.

Figures released by the state medical examiner the day before the new law went into effect show that deaths in Florida from overdoses of oxycodone last year were 33% above the 2007 level; they most commonly involved victims mixing oxycodone with antianxiety drugs. Overall, prescription drugs accounted for 75% of the deaths from overdoses in the state last year; deaths from overdoses of cocaine fell by 23%. “Prescription drugs have really begun, to a significant degree, to replace illicit drugs,” said Chief Medical Examiner Jon Thogmartin.

The new legislation was prompted at least in part by the rapid growth in Florida of pain clinics that dispense medications but, because they do not accept insurance, operate virtually free of state oversight. There are 100 such clinics in Broward County alone. The new measure removes the previous regulatory loophole and demands that the clinics register with the state Department of Health, mandates annual inspections of the clinics, and empowers the state Board of Medicine to establish new regulations governing doctors who dispense drugs from such clinics.

Medicare Prescription Drug Coverage
Initial Analyses Show Program Achieving Its Aims

Health policy analysts have been eager to comb through the data on Part D enrollees to see the impact of the massive program. Initial research focused on who opted to join the program and the choices they made. Now research into the impact a Medi- care drug program has made on beneficiaries is beginning to emerge.

A study headed by health economist Amy Davidoff, assistant professor at the University of Maryland School of Pharmacy, looked for improvements in the activities of daily living (ADL) resulting from improved access to medications. The study found a small but significant difference between persons who had no drug coverage in 2005 but were Part D enrollees in 2006 and persons who did not sign up for Part D. She told the AcademyHealth annual research meeting in late June that the two groups had had similar ADL profiles in 2005, but those in the Medicare program tended to report improvements, while those not in the program reported worsening conditions. Novartis funded the research.

Bruce Stuart, director of Maryland’s Peter Lamy Center on Drug Therapy and Aging, said that “it will be years before definitive answers are available” on the effect of Part D on seniors’ well-being, but that “in its inaugural year, the program was modestly successful in achieving its stated aims.”

Those findings are congruent with the results of another study conducted by the University of Pittsburgh Graduate School of Public Health and published in the July 2 issue of the New England Journal of Medicine. Focusing on persons who had no drug coverage before Part D, the analysts found that once in the Medicare program, those persons’ drug spending increased 74%, with increased use of lipid-lowering and antidiabetic treatments being especially notable. The benefits of better access to medications resulted in better overall health, as measured by a decrease in hospitalizations and doctor office visits. Those for whom Part D provided their first drug coverage reduced spending on other medical services by an average of $33 a month.

The investigators also found that those who had relatively good drug coverage before 2006 (defined as providing at least $1400 a year in benefits) increased their drug spending marginally-by an average of 11%-but also reported increases in other health care spending.

FDA: Propoxyphene Stays on the Market
The FDA on July 7 decided to let Xanodyne Pharmaceuticals’ Darvon and Darvocet and generic painkillers containing propoxyphene stay on the market. The decision marks one of the rare instances in which the agency has refused to go along with the recommendation of an advisory committee of outside experts. In January, 2 such committees-the panel on anesthetics and the panel on drug safety-both advised the agency to ban the component. Their finding: the risk of deaths from overdoses-both accidental and intentional-was too high.

The private advocacy group Public Citizen compiled statistics showing more than 2000 deaths from propoxyphene in the 19 years ending in 1999. The FDA disputes that assertion, saying that it can verify only 90 deaths from propoxyphene over a 35-year period. The drug was introduced in 1957, so it did not have to pass the rigorous safety standards now required for new medications.

The European Medicines Agency on June 25 recommended gradually withdrawing the drug in Europe. However, instead of banning the drug, the FDA imposed 3 new requirements on makers of remedies containing the ingredient. Their labeling must include stronger warnings of the dangers of overdoses, they must provide patients with a medication guide about the drug, and they must conduct a new study on the drug’s effect on the heart when taken at doses higher than those recommended in the labeling. While acknowledging that further studies might uncover greater dangers, the FDA’s top brass decided that the drug does more good than harm. About 22 million prescriptions for painkillers containing the compound are written each year in the United States, more than a third of them for patients 65 years and older.

In Other Legislative and Regulatory News . . . The changing face of pharma lobbying to federal lawmakers and regulators became evident this summer when Hoffmann-LaRoche announced that it is pulling out of Pharmaceutical Research & Manufacturers of America, the industry group of which it has been a member since 1973. After its merger with Genentech, the company decided to put all its eggs in the basket of the Biotechnology Industry Organization (BIO). “BIO’s purpose is closely aligned with the direction of the new company and, therefore, can represent the company’s interest in Washington,” said a statement from Darien Wilson, Hoffmann-LaRoche’s director of public affairs. At the same time, the UK arm of the Swiss drugmaker resigned from the Association of British Pharmaceutical Industry.

The Institute of Medicine, responding to a congressional request, has come up with recommendations of 100 issues that should receive priority under the Obama administration’s plan to spend $1.1 billion on comparative treatment effectiveness studies. On the list: introducing biologics into the treatment of inflammatory diseases, comparing pharmacological and nonpharmacological therapies for dementia, treating low back pain, using strategies to improve patient adherence to drug regimens, and comparing monotherapy with polytherapy for epilepsy. The treatment industry took little part in developing the priorities; the Institute of Medicine got 2000 replies to its requests for recommendations, but only 28 came from drug or device manufacturers. All 100 recommended topics are available at http://www.iom.edu/Object. File/Master/71/107/CER%20report% 20brief%206%2030%2009.pdf.

Washington State’s program to goad patients to opt for generics rather than brandname drugs is saving the state money, according to a report to the Joint Legislative Audit and Review Committee. However, “we have to say that we can’t quantify or give you an exact amount that was saved,” said John Bowden, who headed the study for the panel. Under the program, a pharmacist filling a prescription for a person with medical coverage from the state is supposed to consult a list of preferred generics and suggest using one of them. The plan has led to 87% of Washington State Medicaid prescriptions being filled with generics. In addition, the program has changed doctors’ prescribing patterns: in 2004, about half of prescriptions included a “dispense as written” bar to generics, compared with only 4% last year.

Mississippi’s Board of Pharmacy got new power to regulate Internet prescription drug sales. Under legislation that just went into effect, “people won’t be able to fill out a questionnaire and have a doctor in another state sign off on a prescription for someone they’ve never met,” explained state Sen Sidney Albritton, sponsor of the bill. The measure also requires every pharmacy, wherever located, that distributes to Mississippi customers to make its records available to the pharmacy board.

Nevada’s Public Employees Benefits Board voted on July 9 to wait an additional 8 months to begin offering medical insurance to registered domestic partners of state employees. The statute extending to such partners the legal rights of spouses goes into effect October 1, but the board decided that it “would be in a crisis mode” if it tried to cover domestic partners in the enrollment period that begins November 1. The next enrollment period is slated to begin July 1, 2010.