The sharp rise in the price of some generic drugs is finally slowing according to drug channel expert, Adam Fein. In theory, generic drugs face unlimited competition. But the reality is often much different. There are a variety of reasons generic drug prices can climb, including consolidation in the supply chain as well as legal and regulatory reasons that allow drug makers to jack prices up.
The FDA has the power to solve some of these problems. But when it gets bogged down and cannot quickly process applications for new abbreviated new drug applications (ANDAs) fast enough, the opportunity exists for prices to skyrocket. Consider the case of former Turing Pharmaceutical CEO Martin Shkreli. Shkreli bought the rights to a little-used, 60-year old drug called Daraprim for $55 million. Why would Turing Pharmaceutical even want a generic drug that only had a sliver of a market? Because there was only one supplier. Turing could invest $55 million and potentially jack up the price and gouge insurance companies. If Turing was the only supplier it could raise the price from $13.50 to $750, which it did. That $55 million investment could potentially earn $200 million a year for a few years until the FDA could approve a competitor’s drug. That was not likely to happen for several years.
The FDA has sped up its pace by hiring nearly 1,000 new employees. Over the past few years, the agency approved about 400 to 500 generic drugs a year (35 to 45 drugs a month). Yet, since April 2015, it has been approving or tentatively approving 60 to 70 drugs a month. In December 2015 (a short month) it approved nearly 100. That’s good news for consumers. Research shows that the price of a generic drug has an inverse correlation with the number of competitors making the same generic drug.