Pricing Transparency Policies Not Suited To Generics, GPhA Argues

Drug pricing transparency proposals like the recently-introduced bipartisan bill requiring public justification for increases of 10% or more should not target the generic drug sector, Generic Pharmaceutical Association President and CEO Chip Davis says.

Price increases for most generic drugs aren’t moving the needle in overall drug spending, and so federal action to restrain increases are not needed for them, Davis maintained during an Oct. 19 media call to announce the release of GPhA’s latest report on generic drug savings in the US (see box).

He maintained that the reporting and transparency requirements in the Fair Accountability and Innovative Research (FAIR) Drug Pricing Act would discourage generic competition, thereby increasing overall drug costs.

“One of the things that’s important in the political environment we’re in is to understand the low level of total costs to the system” represented by generics, Davis said. His comments echoed recent remarks by Teva Pharmaceutical Industries Ltd.’s CEO during a briefing with investors. (Also see "Heated Drug Pricing Debate Fanned By Election, Teva's Olafsson Says" - Scrip, 12 Sep, 2016.)

For example, Davis pointed out, if the price of a generic version of Merck & Co. Inc.’s Zocor (simvastatin) increased “from three cents to four cents,” the FAIR act would be triggered. In contrast, a biologic that costs $100,000 per treatment “could raise its price to $109,000 or $109,500 and under the current construct of that bill, there would be no notice requirement or submission or engagement.”

The “net effect of that … would be forcing a generic company to decide whether to continue on in that class or get out. And if an individual company made a business decision to no longer participate and offer a generic, then you have fewer options, you have less competition, and over time prices go up – they don’t go down,” Davis said.

“So when we talk about the importance of policymakers understanding and appreciating the very different dynamics between the branded market and the generic market, that’s one example.”

The FAIR drug pricing act was introduced in mid-September by Sens. Tammy Baldwin, D-Wisc., and John McCain, R-Ariz. and Rep. Jan Schakowsky, D-Ill. It would require companies raising prices by 10% or more during a 12-month period to submit extensive justification of the increase to HHS, which would then publicly release the information. (Also see "Formalizing 'Name And Shame': New Strategy To Rein In Price Increases" - Pink Sheet, 21 Sep, 2016.)

Awkward Pricing Arguments For GPhA

The broader thrust of the bill – to establish a formal HHS oversight authority to monitor price increases – dovetails with Hillary Clinton’s most recent drug pricing plan, announced in the wake of headlines about the steady increase in list prices for Mylan NV’s EpiPen. (Also see "The Clinton Drug Price Board, 23 Years Later" - Pink Sheet, 6 Sep, 2016.)

Indeed, that high-profile example illustrates the challenge that GPhA faces in making its case for policy changes. Mylan's CEO Heather Bresch – the current poster-exec for Rx price gouging – currently chairs GPhA's board of directors. And many of the other recent dustups on drug pricing, including Turing Pharmaceuticals AG’s Daraprim (pyrimethamine) and Valeant Pharmaceuticals International Inc.’s Nitropress (sodium nitroprusside) and Isuprel (isoproterenol), stemmed in part from what could be arguably be called generic failures.

“The thing everybody seems to come back to is the way to minimize or mitigate against those circumstances going forward is to increase additional generic competition.”

In those cases, minimal generic competition gave the drugs a virtual monopoly in the market, which enabled significant price increases that drew intense criticism from Congress and the public. (Also see "EpiPen Price Hearing: House Plays Bootleg Tape Of Shkreli Event" - Pink Sheet, 22 Sep, 2016.)

But, Davis said, “even in those circumstances, as unique as they may be, where you see price variability or fluctuation upwards, including the some of the high profile cases that have gotten a lot of attention. … the thing everybody seems to come back to is the way to minimize or mitigate against those circumstances going forward is to increase additional generic competition, whether you’re talking about an older off patent medicine that had little to no competition, which got a lot of attention about a year ago, or anything that has subsequently been highlighted since."

Changing How Generics Are Seen

That the low-cost sector finds itself on the defensive in a pricing debate is at once surprising and predicable. Last year, generics found themselves on the hook for increased Medicaid discounts if their prices rise faster than inflation (Also see "For Generics Industry, Will Larger Firms Mean Weaker Lobbying?" - Pink Sheet, 21 Mar, 2016.).

Brands already faced the same penalty, and the generics failed to convince Congress that the pricing dynamics of their industry necessitated a different approach. Now basically a year later, Davis again finds himself making the same argument – what works for brand drugs won't work for generics. Brand firms may not like a requirement to disclose bigger pricing increases, but they're comfortable enough with the concept to make some price-capping pledges of their own. (Also see "Allergan's Price Reform Pledge: Will Others Follow?" - Scrip, 6 Sep, 2016.)

Instead of focusing on pricing directly, generic firms seem to not want policy changes that focus on access and competition, including limiting the ability of some brand drug safety programs to preclude generic development. But if generics want a different kind of debate, they need to get policy makers to think about their products differently, and the association's savings reports are a key element of achieving that shift in perception.

Headlines about old drugs with skyrocketing prices don't make that an easy change to make, but Davis argues that claims about big increases for some generics don’t acknowledge decreases in the price of many other generics. Health economists have demonstrated that “for every [generic] product that takes what has been characterized as significant, by some excessive, price increase, there are at least twice as many that have taken a commensurate decrease in price,” he said.

“The challenge that we have, quite frankly, is that those that decreases in price don’t get as much attention right now.” In fact, Davis said, generics are increasing their share of the Rx market even as they account for less of overall prescription spending. (see chart)