NEWS

By Llewellyn Hinkes-Jones

Sept. 23 — A large number of drugs that saw substantial price increases in the last four years were generics, and many of those drugs had competitors that didn’t prevent prices from declining, according to an analysis of National Average Drug Acquisition Cost (NADAC) data by Bloomberg BNA.

The growth in prices of competitive generics, including some large and mega increases—exceeding 1,000 percent—indicates that lack of competition and supply chain issues may not be the only factors driving costs.

The pharmaceutical industry has been under fire recently for large-scale price hikes. The CEO of Mylan N.V. appeared before lawmakers Sept. 21 to explain a 400 percent price hike on their branded EpiPen (See previous story, 09/22/16).

Makers of generic digoxin and doxycycline products, including Allergan plc, Mylan N.V., Impax Laboratories Inc., Lannet Company Inc., Par Pharmaceutical Companies Inc. and West-Ward Pharmaceutical Corp., were accused of price fixing in lawsuits filed earlier this year in federal court. An investigation by the Justice Department’s antitrust division is ongoing (See previous story, 08/09/16).

Bills aimed to curb or oversee drug price changes have been introduced recently, including the Fair Accountability and Innovative Research (FAIR) Drug Pricing Act, which would give taxpayers notice of price increases to the prescription drug market. The pharmaceutical industry called the legislation an attempt to build a case for price controls (See previous story, 09/16/16).

A previous analysis by Bloomberg BNA showed spending on drugs through Medicare Part D surged 50 percent for 200 drugs between 2013 and 2014 (See previous story, 08/30/16).

Early in 2015, a congressional analysis found that half of all generic drugs rose in price between 2013 and 2014 based on NADAC data.

Some Generics Cheaper, Others Not So Much

A Sept. 12 report by the Government Accountability Office (GAO) revealed that generic drug prices in Medicare Part D have dropped overall since 2010, while only some older generics increased in price (See previous story, 09/14/16).

But NADAC data—which cover drug acquisition costs to retail community pharmacies, independent of payer or insurance provider—paint a different picture.

Generics represented the vast majority of drugs with declining costs (93 percent) compared to branded drugs, but a discounted generic often coincided with price spikes in other branded and generic versions of the same drug. While a majority of generics decreased in price with respect to inflation since 2013, 31 percent increased.

Of those generics that increased, the increase was substantial. Over a third went up between 10 percent to 50 percent and 24 percent at least doubled in price.

Few of those generics were particularly older. Most generics with moderate price increases (10 percent to 50 percent) were first marketed by their respective companies after 2003, and those with higher price increases—those that at least doubled—came from drugs that were first marketed after the mid-1990s.

Seventy-four percent of the drugs that saw at least a 50 percent price were generics.

Drugs with large-scale price spikes—those rising over 100 percent or $10 per unit—were also overwhelmingly generic (73 percent). This included mega-increases of over 1,000 percent on drugs like amitriptyline hydrochloride, naproxen sodium, and ursodiol.

The increases occurred across a wide variety of attributes, mostly independent of company, pharmaceutical class or substance.

Flood of Pharma M&A in 2015

The GAO report included supplier consolidation as a large driver of generic price increases, and the pharmaceutical industry has experienced a wave of mergers and acquisitions in the last few years, with approximately 300 more deals in 2015 than the year before.

Of the companies listed in the NADAC data, more than half of them have been acquired by other companies and are now listed under a different parent organization.

Companies that topped the list of most M&A deals and largest combined value of deals also commonly raised their prices—like Mylan, Novartis, Allergan, and Teva—but price changes and M&A within the pharmaceutical industry was so common as to make any correlation complex.

Companies with monopolies on drugs were relatively likely to raise the price (45 percent), with a median price increase of about 5 percent. But a monopoly on a drug didn’t guarantee a price increase, and competitive drugs didn’t always go down in price.

Competition Not Consistently Driving Prices Cheaper

Competition from generic drugs might ostensibly drive all prices down, but drugs with generic competitors often saw their prices rise even as their competition slashed prices.

Sixty-two percent of drugs with large-scale price increases had competitors. Valeant Pharmaceuticals, in particular, had cheaper generic competitors, which didn’t prevent the company from raising prices on its own.

Of those drugs that decreased in price, a separate company produced a variety of the drug—more often a generic than a branded drug—that increased in price 70 percent of the time.

For example, the price for one generic drug based on naproxen sodium, a pain reliever developed by Cardinal Health, Inc., fell by 4 percent, while another developed by Teva Pharmaceuticals rose more than 2,000 percent.

Michele Pelkowski, a representative of Teva Pharmaceuticals, wasn't able to give a specific reason for the variable pricing on naproxen sodium, but said that generic drug prices fluctuate on a number of factors such as number of competitors, cost of ingredients, and the cost of production related to FDA requirements.

Digoxin, the popular antiarrhythmic agent partially at the center of the DOJ’s antitrust suit, was first marketed by Lannett Co. in 2002. Lannett offered one of the cheaper options for the drug in 2013 compared with their four other competitors.

Since 2013, Lannett increased the cost on that version of the drug 533 percent, but more expensive dosages decreased in price. There were no drug shortages, no new patents or formulations, In the end, all companies settled on a price within 60 cents to 75 cents per unit. Ursodiol, a generic used to prevent liver damage, had variants produced by pharmaceutical companies such as Mylan, Cardinal Health, Impax, Lannett and Allergan, but competition didn’t prevent the companies that produced a capsule version of the drug from raising the cost 1,200 to 1,300 percent, while tablet versions of the drug were discounted.

Certain versions of clobetasol propionate, a generic corticosteroid originally produced in the late 1990s by Fougera Pharmaceuticals Inc. and now owned by Novartis, increased by 1,000 percent, while newer versions of the drug made by other companies decreased in price. But in the end, all versions of the drug were priced within the $2 to $4 per unit range.

Generic drugs based on hydroxychloroquine sulfate—an antirheumatic agent used to treat malaria and rheumatoid arthritis—went up in price, while others went down. But all six generic producers settled on the price of $1.43 per unit, 1,300 percent higher than the previous cheapest price. Plaquenil, the branded version produced by Sanofi, increased by 70 percent.

Price changes could vary wildly even for varieties of a drug produced by the same company. Sandoz Pharmaceutical’s version of amitriptyline hydrochloride, an antidepressant, went up by 650 percent to 2,185 percent depending on the active strength of the drug, while there were four competitors for the drug.

Leslie Pott, a representative for Sandoz, didn't comment on why different dosages of the drug changed at different rates, but added that “the net market price after rebates and discounts [for amitriptyline] has been declining year over year due to new market entrants” and that drugs within the Sandoz portfolio declined 7 percent last year.

Drugs listing sodium chloride, otherwise known as salt, as the sole ingredient increased sometimes by 50 percent to 180 percent depending on the company producing it and in what format.

Other Explanation for Price Variations

John Norton, director of public relations for the National Community Pharmacists Association (NCPA), told Bloomberg BNA that even to his members “it’s a mystery why generic prices go up.”

He said that sometimes it’s related to monopoly and sometimes related to suppliers, but that the market is pretty erratic and that a drug can quickly shoot up 1,000 percent after a pharmacy has already ordered it at the cheaper price. The pharmacy benefit manager (PBM) agrees to the higher price, which is passed on to the pharmacy, and the pharmacy is stuck swallowing the difference.

In 2014, the NCPA called on Congress to investigate large swings in acquisition price, delays in PBMs updating their reimbursement rate and the ability of community pharmacists to remain in business after swallowing losses over reimbursement.

Justin Wilson, independent owner of the ValuMed Pharmacy in Oklahoma, told Bloomberg BNA that the price hikes started around fifteen years ago. “Drugs that had been around forever at pennies a pill started going up as companies were bought out,” he said. He pointed out that drugs such as doxycycline, clobetasol propionate, and anucort with numerous manufacturers “have been around for decades” without a change in price. None of them are listed on the Food and Drug Administration’s Drug Shortages list. “Clobetasol currently costs six times more depending if it’s a shampoo or an ointment even though it’s the same substance, and anucort is a simple hydrocortisone,” he said.

Leigh Purvis, Director of Health Services Research at AARP, could not necessarily say what was driving individual manufacturer decisions, but that price wars and competition is usually what drives generic prices down.

“If there’s only one or two manufacturers, there’s not a lot to stop them from increasing the price. There needs to be three or four companies to see real competition,” she told Bloomberg BNA.

Besides consolidation, material shortages, and difference in suppliers, she pointed to negotiations with PBM as one other potential driver of price changes. “Otherwise, generics don’t really participate in marketing,” she said.

Steve Arnoff, a representative of the Generic Pharmaceutical Association (GPhA), didn't comment on the varying price changes among specific drugs, but added that the proliferation of generic drugs helps drive down costs across the market. A recent statement from GPhA CEO and President Chip Davis highlighted a January Health and Human Services Department issue brief stating “generic drug prices are not an important part of the drug cost problem facing the nation.”

Charles Coté, a spokesman for the Pharmaceutical Care Management Association that represents pharmacy benefit managers, pointed to market and manufacturer consolidation, shortages, and other issues as the cause, but also included the need for Maximum Allowable Cost (MAC) lists—PBM-generated lists of drug prices the PBM is willing to pay to pharmacies—as a tool to help payers control drug prices.

Benefits of Competition

Both the GAO report and a recent Harvard study in The Journal of American Medical Association (JAMA) supported the role of competition and the role of generics in reducing drug prices.

Based on analysis of NADAC data, drugs with declining prices were overwhelmingly competitive (78 percent), with at least two or three separate companies developing products based on the same substance.

Large Fluctuations on Corticosteroids, Opioid Agonists

Price hikes occurred across the wide swath of pharmaceuticals, but corticosteroids stood out as the most common.

Twenty-seven varieties of corticosteroids across numerous companies went up in price, followed by opioid agonists (19) and nonsteroidal anti-inflammatory compounds (18). Both corticosteroids and opioid agonists were popular for large-scale price hikes as well.

But corticosteroids, opioid agonists and nonsteroidal anti-inflammatory drug compounds were also common for price drops as well. Around 40 varieties of each of those drug categories got cheaper.

Valeant Exceptional Among Companies

Price hikes occurred across most pharmaceutical companies with little consistency except for one.

Valeant Pharmaceuticals, which has been singled out by lawmakers for its price increases and accusations of misconduct, had 12 of the 14 highest total cost increases for drugs with a high percentile increase. Of those 12, they increased $42 per unit on average—a median increase of 258 percent.

Competition didn't help tamp down prices as many Valeant drugs had generic competitors for their branded products. A recent lawsuit accused the company of secretly refilling prescriptions to steer orders away from generics and towards the company’s more expensive brand name drugs.

To contact the reporter on this story: Llewellyn Hinkes-Jones in Washington at ljones@bna.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.