The Hatch-Waxman Act passed in 1984 to hasten the introduction of generic competition into the pharmaceutical market. According to an analysis from IMS Health, $734 billion have been saved in the past 10 years through the use of generic pharmaceuticals.
The long name of the Hatch-Waxman Act is the “Drug Price Competition and Patent Term Restoration Act of 1984.” The law has indeed brought drug price competition into the prescription drug market — which was anticipated when it passed to save “$1 billion over the next decade.”
In fact, the savings have been 734 times that forecast.
Examining these data by therapeutic category is interesting. The chart on the right shows the details: clearly, generics have hit the top-line of nervous system branded drugs hard, registering $250 billion worth of savings in a decade. The nervous system category would include brand names like Ambien and Zoloft.
The second most prominent area in generic drugs savings were yielded by cardiovascular drugs which would include the blockbuster brand names like Zocor and Pravachol.
Health Populi’s Hot Points: The generic substitution rate reached 69% in 2008; 2.6 billion of the 3.8 billion prescriptions were filled with generics. One of the key driving forces for generic substitution in 2008 was the expiration of blockbuster drug patents, leading to:
1. Medicare Part D demand for cheaper drugs to manage seniors’ potential donut holes
2. Insured consumers’ growing demand for cheaper drugs due to widening tiers of co-pays in prescription drug plans
3. Uninsured consumers’ looking for cost-effective health products and services when paying 100% out of pocket.
Retail pharmacies’ use of very low cost generic drug fills to lure consumers into the more profitable front-of-store aisles further drives value-searching health citizens toward generic substitution.
The GPhA estimates that 16 cents of every dollar spent on prescription drugs goes for generics. Clearly, these products have brought a lot of value to American payers for drugs, from employers and governments (that would be taxpayers) who cover prescription drug plans, to individuals who pay out of pocket for health care. More such savings will accrue in the next few years as more blockbusters go off-patent.
We are reminded here of the health economics metric that one stakeholder’s revenue or cost-savings is another’s loss or debit.
The generic drug supply depends on a resilient, buoyant pipeline of more brands that go off-patent. The next category under consideration is biotech derived products — the “biogeneric” category. Datamonitor estimated that by 2010, patents will expire on brand biologics worth $15 billion in annual sales. And the savings will just keep on comin’ for some…
…while biotech companies must gear up for their share of generics’ bite out of revenues. According to GPhA, spending on biologics will reach $100 billion in 2010, accounting for over 25% of all drug spending. Biotechs should learn from what Big Pharma has been through and figure out how to effectively communicate the value of their products before they get commoditized — either through market factors or Congressional fiat.