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“Hundreds of supermarket pharmacies offer reduced-price generic drug programs. Some chains have free generic drug programs for low-income consumers. These programs save consumers significant amounts of money and allow uninsured and underinsured individuals and patients on fixed incomes access to vital, generic drugs."
— Cathy Polley, VP, health and wellness, FMI
New Generic Entries
Given the coming demand and pressures to curb health care spending, the timing seems perfect for an unusually large number of brand-name drugs to shed their patents in the next five years. Drug manufacturers are granted 20-year market exclusivity on their drugs.
This year alone some 26 drugs are expected to lose their patents, according to estimates compiled by Medco Health Solutions. The five biggest dollar volume drugs generating over $1 billion are ready to make the conversion within the next few months.
Lexapro, a $2.5 billion anti-depressant from Forest Pharmaceuticals, made the conversion on March 14. Seroquel, which treats schizophrenia and bipolar disorder, is expected to fall off the cliff this month. It generated $3.5 billion for AstraZeneca in 2010. Plavix, a $5 billion anti-clot blood thinner from Bristol-Myer, is up in May. Singulair, the $3.8 billion asthma/allergy drug from Merck, and Actos, the $2.9 billion type 2 diabetes drug from Takeda, are due to expire.
These five drugs represent sales of roughly $13 billion in the U.S. This year alone an estimated $33 billion worth of brand-name drugs are expected to lose their patent protection, according to IMS Health. That figure is expected to grow to about $90 billion within the next several years, close to a third of the annual spending on all prescription drugs in the U.S., researchers estimate.
Generic drugs represented $78 billion in U.S. sales in 2010 and accounted for 78% of all retail prescriptions dispensed, according to IMS Health.
The falloff in revenue volume from branded to generic sales is steep. On average, more than 80% of a brand’s prescription volume is replaced by generics within six months of a patent loss, reports IMS. This means steep drops of as much as 75% in generic drug pricing from the brand-name drug. This is driven by fierce market competition among generic drug manufacturers.
While this will decrease the overall prescription dollar sales volume for retail pharmacy, it also can yield bigger profits per prescription through competitive pricing spreads from third-party reimbursement and the net acquisition cost.
The importance of the generic market for retail pharmacy is evident in big chain quarterly reports.
As Walgreens’ Chief Financial Officer and Executive Vice President Wade Miquelon noted during the drug chain’s first quarter earnings call: “Beginning with the Nov. 30 [2011] launch of atorvastatin, the new generic version of the brand Lipitor, we expect to benefit from acceleration in the rate of introductions of new generics, which should positively impact our gross profit dollar growth in the second half of the fiscal year.”
And, in the drug chain’s second-quarter call last week, Miquelon said, “We expect to benefit from a higher level of new generic introductions in the second half including expected launches of generic versions of the brands Lexapro, Seroquel and Plavix.”
But the generic bubble could burst for retail chain pharmacies yielding losses in reimbursements rather than profits under the federal government’s proposed new rule on Medicaid pharmacy reimbursement.
