FDA Analysis Find More Evidence Linking Generic Competition to Lower Prices

Looking at products that entered the marketplace between 2015 and 2017, an FDA report finds that greater competition among generic drug makers is associated with lower prices.

Earlier this year, the FDA noted that generic drugs account for about 90% of all prescription drug purchases; last year, competition from generic drugs saved about $293 billion.

The latest report used 2 different sources for wholesale prices, including both the average manufacturer prices (AMP) reported to CMS as well as invoice-based wholesale prices reflecting pharmacy acquisitions from the IQVIA national sales perspective database (NSP).

As the number of competitors for products increased, prices dropped; combining all competition groups, the median price of generics relative to brands using AMP is 40% for the drugs in the sample. The median price ratio using invoice prices is 49%.

AMP data show price declines associated with additional generic competition are steeper than those based on invoices for pharmacy acquisitions, although most of the difference came from wholesaler markups, the FDA said.

For products with a single generic producer, the generic AMP is 39% lower than the brand AMP before generic competition, compared with 31% reduction using invoice prices.

When there are 2 generic producers, AMP data show that generic prices are 54% lower than brands, compared with 44% using the IQVIA data.

When there are 4 generic drug makers for a product, price falls even more steeply: AMP data show the prices are 79% lower, compared with 73% using invoice based drug prices.

Moreover, both AMP and invoice prices show a reduction of more than 95% compared with brand prices when there are 6 or more generic drug makers competing.

Since AMPs are more directly under the control of the drugmaker, their data may “lead to better measurement of the association between competition and price” than invoice-based pharmacy costs, the report said. AMPs also account for other factors excluded from pharmacy invoices, including discounts, rebates, and other adjustments.

However, the report notes that neither AMPs nor invoice-based prices paid by pharmacies fully capture the prices paid by patient’s and third-party payers. In addition, both measures exclude payments made by drugmakers to pharmacy benefit managers.

The report only applies to drugs sold to retail pharmacies, and differences in prices between brand and generic drugs sold to hospitals may be different, the report said.

For the purposes of this report, initial generic entry was defined as having observed only brand drug sales followed by at least 3 consecutive months of generic drug sales.

The report included a final sample of 181 unique products and 711 generic products with unique national drug codes.

For every brand product, the report computed the price per unit during the 3 months prior to generic entry. For generics, the analysis computed for all manufacturers of a product the mean price per unit each month, weighting the prices by each manufacturer’s share of the total quantity sold, and the number of manufacturers. The 2 datasets were merged by product and month, and computed for each product the ratios of the mean generic price to the corresponding brand product’s price.