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Pricing When Drugs Lose Patent Protection

By February 19, 2016Commentary

This being a presidential year, drug prices are once again the subject of outrage, with candidates threatening all manner of action, while holding out their hands (yes, often behind their backs, hidden from public view) for large donations from the drug manufacturers.  But IMS shows us that once a drug goes off patent protection, prices drop, depriving the bereft drug company of much-needed revenue.  (Not to mention enough funds for large executive bonuses.)   (IMS Report)   Now of course, those price declines may help patients, but come on, do they really need the help, especially compared to our beleaguered drug industry?  Tragically, between 2002 and 2014, in the first year after loss of patent protection, generics had a 51% lower price and in the second year a 57% lower one than the branded drugs they were replacing.  For traditional oral medications the decline was even steeper, 66% in the first year and 74% in the second.  I mean, how would you like to be making billions of dollars in profit on a drug and suddenly both your revenue and profit just almost disappear.  I know, I know, its hard to summon up the appropriate amount of empathy and compassion for these poor drug manufacturers.

Of course, the problem we have now is that not enough drugs are losing patent exclusivity and our new drugs are largely specialty compounds that are really expensive and tend to have a way to go on patent lives and are likely to only be duplicated through the biosimilar pathway, which is pretty untested and likely won’t produce the same level of savings as generics did for traditional blockbuster drugs.  So it is curious that IMS puts this report out now; almost like defending the drug industry’s pricing.  And gee, why would IMS do that, I mean its not like the drug manufacturers are their main customers or anything.  And oh gosh, the report was funded by PhRMA, I mean who do they represent, couldn’t be the drug companies could it?  I seriously don’t know why people even bother putting out brown-nosing reports like this.

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