Drug prices to plummet in wave of expiring patents

The cost of prescription medicines used by millions of
people every day is about to plummet.

The next 14 months will bring generic versions of seven of
the world’s 20 best-selling drugs, including the top two: cholesterol fighter
Lipitor and blood thinner Plavix.

The magnitude of this wave of expiring drugs patents is
unprecedented. Between now and 2016, blockbusters with about $255 billion in
global annual sales will go off patent, notes EvaluatePharma Ltd., a London
research firm. Generic competition will decimate sales of the brand-name drugs
and slash the cost to patients and companies that provide health benefits.

Top drugs getting generic competition by September 2012 are
taken by millions every day: Lipitor alone is taken by about 4.3 million
Americans and Plavix by 1.4 million. Generic versions of big-selling drugs for
blood pressure, asthma, diabetes, depression, high triglycerides, HIV and
bipolar disorder also are coming by then.

The flood of generics will continue for the next decade or
so, as about 120 brand-name prescription drugs lose market exclusivity,
according to prescription benefits manager Medco Health Solutions Inc.

“My estimation is at least 15 percent of the population
is currently using one of the drugs whose patents will expire in 2011 or
2012,” says Joel Owerbach, chief pharmacy officer for Excellus Blue Cross
Blue Shield, which serves most of upstate New York.

Those patients, along with businesses and taxpayers who help
pay for prescription drugs through corporate and government prescription plans,
collectively will save a fortune. That’s because generic drugs typically cost
20 percent to 80 percent less than the brand names.

Doctors hope the lower prices will significantly reduce the
number of people jeopardizing their health because they can’t afford medicines
they need.

Dr. Nieca Goldberg, director of The Women’s Heart Program at
NYU Langone Medical Center in Manhattan, worries about patients who are
skipping checkups and halving pills to pare costs.

“You can pretty much tell by the numbers when I check
the patient’s blood pressure or cholesterol levels,” that they’ve not
taken their medications as often as prescribed, she says.

Even people with private insurance or Medicare aren’t
filling all their prescriptions, studies show, particularly for cancer drugs
with copays of hundreds of dollars or more.

The new generics will slice copayments of those with
insurance. For the uninsured, who have been paying full price, the savings will
be much bigger.

Daly Powers, 25, an uninsured student who works two part-time
jobs at low wages, says he often can’t afford the $220 a month for his
depression and attention deficit disorder pills. He couldn’t buy either drug in
June and says he’s struggling with his Spanish class and his emotions. He looks
forward to his antidepressant, Lexapro, going generic early next year.

“It’d make all the difference in the world,” says
Powers, of Bryan, Texas.

Generic medicines are chemically equivalent to the original
brand-name drugs and work just as well for nearly all patients.

When a drug loses patent protection, often only one generic
version is on sale for the first six months, so the price falls a little bit
initially. Then, several other generic makers typically jump in, driving prices
down dramatically.

Last year, the average generic prescription cost $72, versus
$198 for the average brand-name drug, according to consulting firm Wolters
Kluwer Pharma Solutions. Those figures average all prescriptions, from
short-term to 90-day ones.

Average copayments last year were $6 for generics, compared
with $24 for brand-name drugs given preferred status by an insurer and $35 for
nonpreferred brands, according to IMS Health.

Among the drugs that recently went off patent, Protonix, for
severe heartburn, now costs just $16 a month for the generic, versus about $170
for the brand name. And of the top sellers that soon will have competition,
Lipitor retails for about $150 a month, Plavix costs almost $200 a month and
blood pressure drug Diovan costs about $125 a month. For those with drug
coverage, their out-of-pocket costs for each of those drugs could drop below
$10 a month.

Jo Kelly, a retired social worker in Conklin, Mich., and her
husband, Ray, a retired railroad mechanic, each take Lipitor and two other
brand-name medicines, plus some generic drugs. Both are 67, and they land in
the Medicare prescription “doughnut hole,” which means they must pay
their drugs’ full cost by late summer or early fall each year. That pushes
their monthly cost for Lipitor to about $95 each, and their combined monthly
prescription cost to nearly $1,100.

Generic Lipitor should hit pharmacies Nov. 30 and cost them
around $10 each a month.

“It would be a tremendous help for us
financially,” she says. “It would allow us to start going out to eat
again.”

For people with no prescription coverage, the coming savings
on some drugs could be much bigger. Many discount retailers and grocery chains
sell the most popular generics for $5 a month or less to draw in shoppers.

The impact of the coming wave of generics will be widespread
— and swift.

Insurers use systems that make sure patients are switched to
a generic the first day it’s available. Many health plans require newly
diagnosed patients to start on generic medicines. And unless the doctor writes
“brand only” on a prescription, if there’s a generic available,
that’s almost always what the pharmacist dispenses.

“A blockbuster drug that goes off patent will lose 90
percent of its revenue within 24 months. I’ve seen it happen in 12
months,” says Ben Weintraub, a research director at Wolters Kluwer Pharma
Solutions.

The looming revenue drop is changing the economics of the
pharmaceutical industry.

In the 1990s, big pharmaceutical companies were wildly
successful at creating pills that millions of people take every day for
long-term conditions, from heart disease and diabetes to osteoporosis and
chronic pain. The drugs are enormously profitable compared with drugs that are
prescribed for short-term ailments.

The patents on those blockbusters, which were filed years
before the drugs went on sale, last for 20 years at most, and many expire soon.

In recent years, many drug companies have struggled to
develop new blockbuster drugs, despite multibillion-dollar research budgets and
more partnerships with scientists at universities and biotech companies. The
dearth of successes, partly because the “easy” treatments have
already been found, has turned the short-term prognosis for “big
pharma” anemic.

“The profit dollars that companies used to reinvest in
innovation are no longer going to be coming,” warns Terry Hisey, life
sciences leader at consultant Deloitte LLP’s pharmaceutical consulting business.
He says that raises “long-term concerns about the industry’s ability to
bring new medicines to market.”

But pharmaceutical companies can save billions when they
stop promoting drugs that have new generic rivals, and U.S. drug and biotech
companies are still spending more than $65 billion a year on R&D.

Drug companies have received U.S. approval for 20 drugs this
year and expect approval for other important ones the next few years.
Eventually, those will help fill the revenue hole.

For now, brand-name drugmakers are scrambling to adjust for
the billions in revenue that will soon be lost. Typically, they raise prices 20
percent or more in the final years before generics hit to maximize revenue.
Some also contract with generic drugmakers for “authorized generics,”
which give the brand-name company a portion of the generic sales.

Brand-name companies also are trimming research budgets,
partnering with other companies to share drug development costs and shifting
more manufacturing and patient testing to low-cost countries.

Pharmaceutical companies have cut about 10 percent of U.S.
jobs in four years, from a peak of about 297,000 to about 268,000, according to
Labor Department data. Nearly two-thirds of the cuts came in the last 1 1/2
years, partly because of big mergers that were driven by the need to bulk up
drugs in development and boost profits in the short term by cutting costs.

Drug companies also are trying to grow sales by putting more
sales reps in emerging markets, such as China and India, and by diversifying
into businesses that get little or no generic competition. Those include
vaccines, diagnostic tests, veterinary medicines and consumer health products.

As the proportion of prescriptions filled with generic drugs
jumped to 78 percent in 2010, from 57 percent in 2004, annual increases in
prescription drug spending slowed, to just 4 percent in 2010. According to the
Generic Pharmaceutical Association, generics saved the U.S. health care system
more than $824 billion from 2000 through 2009, and now save about $1 billion
every three days.

The savings are only going to get greater as our overweight
population ages. People who take their medicines regularly often avoid costly
complications and hospitalizations, says AARP’s policy chief, John Rother,
which produces even bigger savings than the cheaper drugs.

In addition, many patients taking a particular brand-name
drug will defect when a slightly older rival in the same class goes generic.

Global sales of Lipitor peaked at $12.9 billion in 2006, the
year Zocor, an older drug in the statin class that reduces bad cholesterol,
went generic. Lipitor sales then declined slowly but steadily to about $10.7
billion last year. That still will make Lipitor the biggest drug to go generic.

For patients, it’s a godsend.

Douglas Torok, 59, of Erie, Pa., now spends nearly $290
every three months for insulin for his Type 2 diabetes, plus four daily pills —
Lipitor, Plavix and two generics — for his blood pressure and cholesterol
problems. The $40,000-a-year foundry supervisor fears not being able to cover
the out-of-pocket costs when he retires and doesn’t have a generous
prescription plan.

In the meantime, once Lipitor and Plavix get generic
competition his copayments will plunge.

“I will pay $16 for 90 days,” says Torok, who
hopes to travel more. “It’s a big deal for me on my income.”