Drug Price Wars, Episode III: Revenge of the Generic Drugs

Drug Price Wars logo-Episode IIIThis drug pricing series began on the heels of a major battle between pharmacy benefits managers (PBMs) and brand name pharmaceutical companies over drug therapies nearing $100,000 per patient.[1],[2] As the battle over specialty pharmaceuticals wages on in the news, generic manufacturers continue to position in the background in ways that have “Price War Hawks” (like myself) alarmed. When Dr. Peter Bach of Memorial Sloan Kettering Cancer Center’s Center for Health Policy & Outcomes wrote his op-ed in the New York Times two weeks ago about the cost of drugs, he briefly referenced a New England Journal of Medicine article from 2013 that addressed a growing trend of price increases for older generic drugs.[3] [4]

Cornering a Niche Market

The NEJM perspective article addressed the case of albendazole, a broad-spectrum antiparasitic, that was originally marketed by GlaxoSmithKline (GSK). In this example, albendazole was approximately $6/day in late 2010, but by 2013 the average wholesale price (AWP) for albendazole had jumped to nearly $120/day.4 That is a 20-fold increase in less than 3 years. Just imagine the consumer reaction if Subway’s $5-footlongs jumped to $100-footlongs. The authors objectively stated many factors that typically impact generic drug pricing, but they pointed out another phenomenon specific to the albendazole case: In October 2010, GSK sold its US marketing rights for albendazole to a small private pharmaceutical firm called Amedra Pharmaceuticals (a subsidiary of CorePharma, LLC and all under the umbrella of a global private equity firm called RoundTable Healthcare Partners, LLP).[5] Then in 2011, Teva Pharmaceuticals (TEVA) discontinued making mebendazole, which happened to be the only other drug that is interchanged with albendazole.4 I want to point out that Amedra Pharmaceuticals legally acquired a monopoly-ish control of the treatment of parasitic infections and that nothing in this case seems all that “shady” or evil. It is just business strategy and US laws allow it.

Amedra played the game well and was able to drive the price of albendazole through the roof. In theory, another company could enter the antiparasitic market and directly compete with albendazole but there would be substantial risks involved. If Teva brought back mebendazole to compete, PBMs would then negotiate to drive the prices back down. So why would Teva invest in bringing a drug back knowing that the price would drop? Sounds like a lot of risk for little reward.

The Hard Switch

Now let us consider the recent case of Actavis (ACT) and Namenda® (memantine hcl), the NMDA receptor antagonist used in the treatment of dementia in Alzheimer’s patients. Originally, Forest Laboratories, LLC (FRX) held the rights to Namenda® but in July 2014 the company was acquired by Actavis.[6]  It was announced in February 2014 that the new Forest/Actavis plan was to discontinue the immediate release version of Namenda®, which is taken twice daily and coming off patent, in favor of marketing the brand name NamendaXR®, which is taken once daily, but New York Attorney General Eric Schneiderman filed an antitrust lawsuit in the fall to thwart the plan. The federal judge ruled in December to block Actavis from discontinuing sales of the older version of Namenda®.[7]

While the decision is now being appealed by Actavis and the legal battles wage on, it may be time for the American public to pay attention to what is happening in the pharmaceutical industry. This was very eloquently pointed out by CNBC’s Meg Tirrell (@megtirrell) in September when she described the difference between a “hard switch” and “soft switch” strategies implored by pharmaceutical companies during a drug’s life cycle.[8] As a pharmacist, I’ve seen the “soft switch” used quite frequently where a drug company releases a newer version of an older drug as its patent nears expiration (see just about every “extended release” product on the market), but rarely is a company so bold to flat out pull the older immediate release drug from the market (ie: “hard switch”).

The “hard switch” strategy will definitely be effective in increasing brand name NamendaXR® use, but the strategy is too good. It is too bold and brash. In my opinion, Actavis got greedy so now the issue has been picked up by the media and could lead to future legislative actions that could essentially squash these strategies in the future.

Drug Price Wars Continue: What will happen next?

While one goal of this series is to shed light on some of these cases in a way that is understandable to most readers, the real motivation behind these posts is to light a fire under the voters and policymakers in this country. There are different levels in which we can provide “checks and balances” to markets, but I’m not sure if there will be enough traction to really change the current environment.  I want to improve this health care market and I am afraid many people just gloss over these cases because they don’t understand them. Pharmacoeconomics is a complex field, but when you break down different cases they can be quite simple. If you have questions, please feel free to reach out to me through the comments section or on Twitter (@joeymattingly).

[1] Express Scripts and AbbVie Make Hepatitis C Cure Available to Millions of Patients in Need. Press Releases. Express Scripts Investor Information; December 22, 2014.

[2] U.S. Food and Drug Administration Approves Gilead’s Sovavldi(Sofosbuvir) for the Treatment of Chronic Hepatitis C. Press Releases. Gilead Sciences; December 6, 2013.

[3] Bach PB. Why drugs cost so much. The New York Times; January 14, 2015.

[4] Alpern JD, Stauffer WM, Kesselheim AS. High-cost generic drugs – implications for patients and policy makers. N Engl J Med. 2014; 371:1859-1862.

[5] CorePharma and GlaxoSmithKline conclude agreement on US rights for Dexedrine, Albenza and Daraprim. Press release of GlaxoSmithKline, October 22, 2010. Available at: http://us.gsk.com/en-us/media/press-releases/2010/corepharma-and-glaxosmithkline-conclude-agreement-on-us-rights-for-dexedrineandreg-albenzaandreg-and-daraprimandreg, accessed on January 28, 2015.

[6] Overview. Forest Laboratories, LLC; 2015. Available at: http://www.frx.com/Company, accessed on January 28, 2015.

[7] Pollack A. Judge rules drug maker can’t shelve old pill. The New York Times; December 11, 2014.

[8] Tirrell M. Why you should be paying attention to the lawsuit against Actavis. CNBC; September 17, 2014.

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Joey Mattingly, PharmD, MBA is an assistant professor at the University of Maryland School of Pharmacy located in Baltimore, Maryland. Joey has managed retail and long-term care pharmacy operations in Kentucky, Illinois and Indiana. Leading Over The Counter is a blog of Joey's views and opinions on the topics of pharmacy leadership and management and do not represent the University of Maryland, Baltimore. Joey can be followed on Twitter @joeymattingly.

One Response to “Drug Price Wars, Episode III: Revenge of the Generic Drugs

  • I understand companies releasing different versions of their products to gain new protections such as creating a single-enantiomer version that may be more potent. I understand the desire to maximize return on R&D especially given the arduous process of approval by the FDA.

    As someone who is not well versed in the topic I would be interested to hear thoughts on domestic prices as they relate internationally. I have seen that some drugs that are hundreds of dollars here are fractions of that in Canada. I understand that in America regulation is always viewed as negative and profit is always positive, however why is it up to consumers in the United States to insure the profitability of the industry? I understand that, as a nation, we are wealthier, but individually many are poor and with the implementation of HDHPs many of us pay for medications out of pocket.

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