Nickel and dimed
In recent years, the generic drug industry has been caught up in a vicious cycle of competitive pricing that has reached critical levels. While low prices may initially appease patients and retailers, joy can be short lived because low profits are causing manufacturers to exit categories. Drug shortages inevitably follow, forcing a handful of suppliers to scramble to fill voids left by absconders. Then, the cycle begins anew.
Shortages can leave consumers without necessary medications–or substitutions may be made, opening the door for errors and other negative scenarios. With mega retailers demanding aggressive pricing, some drug suppliers have either shut their doors, been acquired or turned to making higher profit drugs. Epipen generics as well as ADHD drugs and certain vital cancer drugs are among categories most affected by shortages. “Generics deflation has been a fact of life for years,” said Gambelli Funds portfolio manager Jeff Jonas. “But it’s built up to the point of being unsustainable.”
Generics are vital for patients’ financial and overall well-being. The Association for Accessible Medicines said generic and biosimilar savings totaled $408 billion in 2022. Of that, Medicare savings amounted to $130 billion ($2,563 per beneficiary). Combined, generics and biosimilars represent 90 percent of all U.S. prescriptions—but less than 18 percent of savings, with prices of generics declining by about 20 percent since 2019. AAM found that many scarce drugs were in the lowest price tiers.
“It’s a huge gripe for me,” said Amanda Samojedny, VP of operations, Amici Pharmaceuticals. “Generics save the U.S. healthcare system billions. They’re valuable to patients and physicians and are more affordable than ever. But really low prices don’t matter if you can’t get your hands on products. It’s a threat to patient safety and health. The market doesn’t function on value-based pricing, with labor and materials costs increasing. You have shrinking margins because prices are so low. Producing the drug becomes financially unsustainable. Something must give.”
When a manufacturer discontinues a drug, it takes months to fill the void, said
Tony Rosa, VP of retail sales, Amneal Pharmaceuticals. “Last year, the supply was tight in the market overall,” he added. “It’s hard for manufacturers to fill the void without an impact to their existing business. It creates instability on the supply side. This happened throughout the year.”
Root causes
Causes behind declining prices and product discontinuations include retailers’ desire to offer low prices, myriad companies producing the same products and acceleration of FDA facility inspections. “For several years, retailers have faced eroding prescription reimbursement and complicated, opaque PBM practices,” said Brad Leonard, VP, pharmacy commercialization, Upsher-Smith Laboratories. “Obviously, this drives retail pharmacy’s efforts to utilize the least expensive generic products. They’re aided by limited and consolidated buying groups and the FDA’s multiple generic approvals of the same molecules.”
[Read more: A new environment for biosimilars]
During the past decade, some retailers have taken price cutting into their own hands: CVS and Cardinal Health have a 50/50 joint partnership for generics sourcing; Walgreens owns a stake in AmerisourceBergen; and Walmart partners with McKesson Corp. to source and distribute generics in the United States. Since 2006, Walmart has offered generic drugs for $4. It is also large enough to offer private labels in some categories, including insulin that retails for less than $30.
Drugs Introduced to U.S. Market, 2023 & 2024:
In January 2024, Amneal Pharmaceuticals launched fluorometholone ophthalmic suspension. The product received 180-day competitive generic therapy exclusivity from FDA, a status that applies to first-marketed generics of key medicines. FML suspension is indicated for the treatment of corticosteroid-responsive inflammation of the palpebral and bulbar conjunctiva, cornea and anterior segment of the globe. In July, Amneal launched its authorized generic for Xyrem (Sodium Oxybate) oral solution CIII. Sodium Oxybate oral solution, 0.5 g/mL is a central nervous system depressant for treatment of cataplexy or excessive daytime sleepiness in patients with narcolepsy.
In 2023, Camber Pharmaceuticals introduced almost 40 new generic products (22 during the first half of the year) and obtained approval for 43 ANDAs. Its portfolio now encompasses more than 150 generics, with more than 600 SKUs across various therapeutic classes and formulation types. Introductions included Famotidine powder for oral suspension, USP (generic Pepcid), Bupropion HCl ER tablets, USP (SR) (generic Wellbutrin), Eplerenone tablets (generic Inspra), Darunavir tablets (generic Prezista) and Gabapentin capsules (generic Neurontin).
In January 2023, Upsher-Smith Laboratories, LLC expanded its fluoxetine product family with the addition of Fluoxetine Oral Solution, USP, 20 mg/5 mL. It is a generic version of Prozac (fluoxetine) Oral Solution. The fluoxetine oral solution market had U.S. sales of approximately $14.2 million for the 12 months ending November 2022, according to IQVIA.
In April, it introduced Fluphenazine Hydrochloride Tablets, USP in 1 mg, 2.5 mg, 5 mg, and 10 mg strengths. It is a generic version of Prolixin. The fluphenazine hydrochloride tablet market had sales of roughly $30 million for the 12 months ending January 2023.
In November, Upsher-Smith launched Pitavastatin Tablets in 1 mg, 2 mg, and 4 mg strengths. Pitavastatin Tablets are an AB-rated, generic equivalent to the branded product LIVALO (pitavastatin). The Pitavastatin tablet market had sales of approximately $302 million for the 12 months ending August 2023. Sawai Group Holdings Co., Ltd.’s (Sawai) company, Sawai USA, Inc. holds the ANDA for Pitavastatin tablets. This marks Sawai’s first Paragraph IV product to be launched in the United States.
In May, Dr. Reddy’s Laboratories Ltd. introduced Regadenoson Injection, a generic ther- apeutic equivalent of Lexiscan (Regadenoson) injection. It is available in single-dose pre- filled syringes, 0.4 mg/5 mL (0.08 mg/mL). August saw the launch of Saxagliptin and Metformin Hydrochloride Extended-Release Tablets, a therapeutic equivalent generic version of Kombiglyze XR (saxagliptin and metformin hydrochloride extended release) tablets. Tablets are supplied in a strength of 2.5 mg/1000 mg in bottle count of 60 and strengths of 5 mg/500 mg and 5 mg/1000 mg each in bottle counts of 30.
On the supplier side, retail consolidation has made the duplicative manufacturing situation and subsequent low pricing worse. “You have a preponderance of market share residing with a small number of buyers or decision makers and it’s being chased by a much higher number of sellers,” said John Dillaway, EVP, Ascend Labs. “The result is an unbalanced market creating an unhealthy environment for manufacturers.” According to Rosa, there could be up to 10-12 manufacturers competing per product.
Drug manufacturers’ decisions to discontinue low profit generics also have been prompted by debt resulting from a merger/acquisition cycle six or seven years ago. “Some took on way too much debt and had to eliminate unprofitable generics to chip away at it,” said Jonas. “I think they’re doing better today. But it’s been a tough decade.”
More site inspections
Last year, the FDA increased site inspection frequency after a COVID-19 lull. This resulted in more observations and in some cases import bans. “Some pretty big issues popped up in recent years,” said Rosa. “This led to import bans to multiple manufacturers. Buyers were scrambling to find products. With buyers having consolidated so much, issues become bigger.”
In April, the FDA told Sun Pharmaceuticals to take “corrective action” at its Mohall, India, plant following non-compliance with its Consent Decree, noted The Hindu Business Line. This caused a temporary pause in releasing batches until mandated measures were implemented. Specializing in generics, Sun’s offerings include dermatology, cardiology and neurology drugs.
In 2023, the FDA also halted imports from India-based Intas Pharmaceuticals following multiple violations. Inta’s efforts to hide “evidence” was reminiscent of a conspiracy-type TV crime drama.
According to Becker’s Hospital Review, the FDA found plastic bags of torn quality documents under a stairwell and in a truck and scrap room. It also uncovered manually altered documents and found an analyst pouring acid in a trash receptacle containing drug quality documents. Inta’s offerings include carboplatin and cisplatin therapies used to treat various cancers. These drugs were in severe shortage for months following the ban. “Import bans put much pressure on the market at the beginning of 2023,” said Rosa. “Many suppliers with good FDA track records helped resolve the issue, with some relaunching previously discontinued products.” In April, Canada-based Apotex Inc. even received a Drug Shortage Assistance Reward from the FDA for its “substantial efforts” to resolve a U.S. shortage of varenicline tablets, a smoking cessation product.
Potential solutions
Generic drug suppliers are concerned about their future. According to Dillaway, the industry is “at significant risk,” with some companies exiting the market. “We’ve started to see casualties with some manufacturers shutting doors and others showing poor financial results. If untreated, these will augment the number of closures or become acquisition targets.”
Industry associations like the AAM, NASPA, NCPA, NACDS and HAD are shedding light on these issues, including the complexity of how patients access drugs and the care pharmacists provide, said Leonard. PBM reform, he believes, can also help. “We must shift focus away from just prescription reimbursement driving to the least expensive generic medications. PBM reform is an important movement that can strengthen pharmacy’s ability to provide care and shed light on the positive impact generics have on public health.”
[Read more: Personalizing the pharmacy experience]
Jonas said pharmacies and PBMs want a cost-plus model under which customers are charged the drug’s cost plus a small profit margin. “This would bring more transparency and take some price pressure off generics. Now, retail pharmacies and PBMs are making more money off generics. If you smooth profits out across different drugs, you won’t squeeze generics as much.” The FDA also has gotten involved. Back in 2017, it announced the Drug Competition Action Plan to encourage “robust and timely competition for generics” and “greater efficiency and transparency” to the drug review process.
While there has been some progress and updates to the plan, Samojedny said it is not enough. “The DCA was to make generics more accessible. But the system is set up so prices are pushed lower and manufacturers must discontinue drugs that are financially unfeasible to produce.”
Harder to replicate
Some suppliers are maintaining profits by producing more generics whose manufacturing uses specific equipment that cannot be used to make other drugs. While investments are significant, this makes products more expensive to replicate, eliminating numerous “me-too” scenarios.
“Patients see little financial benefit by addition of 10 or more approvals of the same molecule versus other new generic approvals of more complex products where fewer manufacturers may be in the market,” said Leonard.
This is true of many biosimilars, which Intas is now emphasizing. In 2024, Camber plans to offer a broader product range, including specialty and oncology medications. Transdermal, ophthalmic, inhalation and nasal technologies use specialized equipment. Amneal has created a dedicated facility to produce Naloxone, which it hopes will be approved soon. “Not many manufacturers are investing the capital or resources to make these products,” said Rosa. “And there’s not enough product in the market.”
While measures hold promise, they cannot codify the whole industry, particularly when pricing and the entire supply chain is complex, highly regulated and has many parties involved. And patients still require the lower-priced generics. But while the situation has been plaguing suppliers for years, price gouging is getting worse. “There’s been a gradual realization of the inflation these guys face,” said Jonas. “But the drug supply chain is so complicated and opaque that it’s tough.”
