Generics Makers Also Fight Price Controls

The Democratic legislative proposal to authorize price negotiations on costly medicines covered by Medicare and to penalize firms that raise prices faster than inflation has drawn vehement opposition from brand pharmaceutical and biotech companies. More surprising is that manufacturers of generic drugs and biosimilars also are objecting loudly to those policy changes on the table.

Dan Leonard, president of the Association for Affordable Medicines (AAM), says that the reforms under consideration by Congress would limit patient access to more affordable generics and biosimilars by thwarting competition. AAM opposition specifically challenges the proposed compromise approach to Medicare price negotiations and inflation-based rebates.

To gain support from moderate Democrats, Congressional leaders agreed to limit Medicare price negotiations to 20 costly drugs, starting with 10 in 2023. The program, moreover, would apply to expensive drugs that had been on the market for enough time to have lost patent protection or exclusivity status, e.g., small molecules available at least 9 years and biologics for at least 12 years.

Reformers also want to require drug makers to pay higher rebates on drugs that boost prices faster than the consumer price index, including medicines sold in the private insurance market. Leonard notes that generics will be hit harder than brands by this inflation-based rebate due to their basically low prices: a 1 cent increase on a 20-cent pill could exceed the rate of inflation and trigger a penalty. And if downstream purchasers boost prices, the generics maker could be penalized, even it does not increase its price.

The basic problem with the price negotiation scheme for generics is that they could face big price reductions on a brand medicine just when they’re poised to bring their competitive medicine to market. Generics makers have to start the process of testing and planning for mass production of follow-on products years before patents expire, expecting to recover that investment by providing lower-cost alternatives to a costly brand. But the spread between the brand and generic prices would shrink if Medicare can negotiate a lower brand price at that time of patent expiration.

The situation would have an even greater impact on biosimilar makers, where the testing and development of follow-on biotech therapies can cost $100-250 million and involve ten years of investment, Leonard points out. But the proposal before Congress could lead to a price reduction in the brand biologic by 60% right before the biosimilar is set to launch. Moreover, the added uncertainty about what drugs the government would decide are subject to price negotiation could forestall development of multiple biosimilars as well as generics.

Meanwhile, PhRMA (Pharmaceutical Research and Manufacturers of America) continues to loudly oppose any kind of Medicare price negotiations as a threat to future innovation. Brand firms prefer a cap on annual out-of-pocket costs for patients, reduced cost-sharing, plus reforms in the payment and coverage system for Medicare Part B.

AAM warns that misguided reforms on generic drug coverage in the past have led to drug shortages and predicts that the current proposal similarly will undermine the development of low-cost products. Yet, generics makers appear caught between a rock and a hard place. They don’t want to appear to side with Big Pharma in opposing drug price reform, yet the changes contemplated by Congress could radically alter the industry’s basic mode of operation: it’s the very high prices on brand drugs that provide an opportunity for generics and biosimilars to come to market at lower prices and still make a profit. Narrowing the spread upends that business model.