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Tuesday, September 22, 2015

The Rise of Big Generic: Why Knockoff Prescriptions Now Cost $1,200

Not that long ago, the generic drug industry was the ugly stepchild of the Big Pharma family - the uncomely domain of penny pills and piffling profits. The big names in pharma preferred to hawk Prozac, Viagra and other brand-name elixirs at five and 10 dollars a pop, leaving smaller firms that had all the prestige of Kmart to scramble over the nickels and dimes to be had off generics. It was, however, a good era for anyone who needed a cheap generic, as a majority of Americans did (and still do) each year. But times have changed, and decidedly not for the better.

The capstone event of the new era came on May 28, when the Federal Trade Commission reached a whacking settlement of $1.2 billion - one of the largest in the FTC's history - with Teva Pharmaceuticals over shady trade practices. The size of the settlement was only part of the news. The other part was that Teva responded with the corporate equivalent of a shrug, even declaring itself "pleased" with the deal, which might have been taken for bravado but for the concurrence of Teva’s investors, who kept the company's stock price steady as could be. It's not news that a billion dollars is chump change to Big Pharma. The news is that Teva isn't Big Pharma. Teva is a generics maker - Mid Pharma at best. But such has been the consolidation in the generics trade that even its players are now behemoths, and this is where the danger lies.

Teva has been a consolidator among consolidators, hoovering up half a dozen companies in the last 15 years at a cost of more than $30 billion. Headquartered in Israel, Teva does most of its business in the West. In the United States it employs 7,500 people and fills 1.5 million prescriptions a day, more than half a billion a year. In Europe it fills nearly twice that. All of which makes it the biggest seller of generics in both America and the world. Teva has plans to grow bigger still and has cast an acquisitive eye on, among other companies, its nearest rival in the generics field, Mylan (which has so far resisted Teva’s overtures). By one slightly hyperbolic assessment, if the Mylan purchase were to go through, "Every man, woman and child in the U.S. will eventually take a pill manufactured by the new entity." This is not good news for any man, woman or child - unless she or he holds stock in Teva.

Consolidation Results in Skyrocketing Prices

As Big Generic has consolidated, competition has of course dropped, and makers of generics have raised prices flamboyantly. In October 2013, a month's supply of doxycycline, a widely used antibiotic that has been available in generic form for three decades, cost hospitals $1.20. Just six months later, it cost $111.00, an increase of 9,150 percent. In July 2013, a month of tetracycline, another antibiotic long generically available, cost pharmacies $1.50, but a year later it was $257.70, an increase of 17,080 percent. These are extreme instances, but they are not aberrant.

According to Medicare and Medicaid data, from July 2013 to July 2014, the price of half of all generics went up, and nearly 10 percent of them went up by double or more. Among this 10 percent, the average increase was 448 percent. By remarkable coincidence, the most frequently prescribed generics were among the more dramatic risers. One report found that in 2010, the 50 most popular generics cost an average of $13.14 per prescription, but by 2014, it was $62.10, a 373 percent spike. Big Generic is wont to point out that although the prices of half of all generics have gone up, half have gone down. Less often do they point out that the increases have far outpaced the declines. They are like the grocer who advertises the dime knocked off his cauliflower while quietly trebling the price of bread.


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