Correspondence

Prices of Generic Drugs Associated with Numbers of Manufacturers

To the Editor:

Low-cost generic drugs have improved outcomes in patients while saving the health care system more than $1 trillion in the past decade. However, the prices of some generic drugs, such as captopril (Capoten)1 and pyrimethamine (Daraprim),2 have risen substantially in recent years, threatening these gains. Effective competition can ensure low prices of generic drugs, but how much is needed remains an open question.3

We examined the relative prices of generic and brand-name drugs using MarketScan commercial claims data from the period 2008–2014. To ensure stable price estimates, we required a drug to have a minimum of 100 dispensings as a brand-name version and as a generic version in each calendar year. Drugs with a narrow therapeutic index (e.g., levothyroxine) were excluded.

For brand-name and generic versions of an eligible drug, the average yearly prices per dose were estimated. The outcome was the relative price of the generic version to the brand-name version. Competition levels were represented by the number of manufacturers of the generic drug in that year; the subgroup analysis included stratification according to market size.

Figure 1. Figure 1. Relationship between the Number of Generic-Drug Manufacturers and Relative Prices of Generic Drugs to Brand-Name Drugs.

The relative prices of the generic and brand-name versions of drugs were estimated by the calculating the average relative price of a generic drug in a calendar year and comparing it with its brand-name counterpart. For the subgroup analysis, the market size was estimated by dividing the number of dispensings of an individual drug by the total number of dispensings of all generic drugs in a given calendar year; the estimated median market size was used for grouping the drugs into small and large markets.

With 1.9 billion prescription claims, the number of manufacturers of the generic drug was strongly associated with relative price (P<0.001 for trend) (Figure 1). For drugs with one manufacturer of the generic version, the prices of the generic drug and the brand-name drug were similar (relative price of the generic version to the brand-name version, 87%). For drugs with a second manufacturer, the corresponding relative price decreased by 10 percentage points (relative price, 77%), and the relative price for drugs with three manufacturers decreased a further 17 percentage points (relative price, 60%). With each additional manufacturer, the relative prices decreased at a slower rate. Our findings were largely similar across the study years. Larger drug markets saw a steeper decline in the relative prices for the first four manufacturers than did their smaller counterparts.

A similar analysis that was published by the Food and Drug Administration (FDA) covering the period 1999–2004, which predates the current controversies surrounding high-cost generic drugs, showed that drug prices fell by only 6% with one manufacturer of the generic version in a market and reached 52% of the price of the brand-name version with two manufacturers.4 By contrast, we found that the second manufacturer of a generic drug resulted in a smaller decrease in the relative price, signifying a shift in the relationship between the number of manufacturers and drug prices in the past decade.

The FDA recently announced that drugs with fewer than three manufacturers of the generic version would be eligible for expedited review as additional entrants into the generic-drug market, as previously recommended.5 We observed that the effect on prices by the market entry of a generic-drug manufacturer was most pronounced for the first three manufacturers, which provides empirical support for this threshold. However, other initiatives, including importation from trusted sources, should be considered to ensure the maximal amount of competition in the generic-drug market.

Chintan V. Dave, Pharm.D., Ph.D.
Brigham and Women’s Hospital, Boston, MA

Abraham Hartzema, Pharm.D., Ph.D.
University of Florida, Gainesville, FL

Aaron S. Kesselheim, M.D., J.D.
Brigham and Women’s Hospital, Boston, MA

Supported by a grant from the Laura and John Arnold Foundation and by the Engelberg Foundation and the Harvard Program in Therapeutic Science (to Dr. Kesselheim).

Disclosure forms provided by the authors are available with the full text of this letter at NEJM.org.

  1. 1. Alpern JD, Stauffer WM, Kesselheim AS. High-cost generic drugs — implications for patients and policymakers. N Engl J Med 2014;371:1859-1862

  2. 2. Wiske CP, Ogbechie OA, Schulman KA. Options to promote competitive generics markets in the United States. JAMA 2015;314:2129-2130

  3. 3. Dave CV, Kesselheim AS, Fox ER, Qiu P, Hartzema A. High generic drug prices and market competition: a retrospective cohort study. Ann Intern Med 2017;167:145-151

  4. 4. Food and Drug Administration. Generic competition and drug prices. (https://www.fda.gov/aboutfda/centersoffices/officeofmedicalproductsandtobacco/cder/ucm129385.htm).

  5. 5. Gupta R, Kesselheim AS, Ross JS. Prioritization of generic drug review. JAMA Intern Med 2017;177:141-142

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