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Coming Wave of Generic Drugs Will Save Money for Patients

prescription-pills

 (Reuters)

Those who help foot the bills for prescription drugs — patients, taxpayers, employers and some labor unions — won’t be the only ones to benefit as dozens of popular brand-name pills get generic competition over the next several years. Here’s a look at some winners and losers as an unprecedented wave of new generics begins:

WINNERS:

—Generic drugmakers. Teva Pharmaceutical Industries Ltd., Mylan Inc., Watson Pharmaceuticals Inc. and other makers of copycat pills will split billions of dollars in future sales, even though their medicines will sell for up to 80 percent less than the original drugs.

—Prescription benefit managers. Medco Health Solutions, Express Scripts Inc. and other companies that process prescriptions at retail and mail order pharmacies for health insurance plans make a larger profit for filling generic prescriptions than brand-name ones. That’s because their contracts align their interests with those of their customers, who save big when health plan members use more generic drugs.

—Drug wholesalers. McKesson Corp., Cardinal Health Inc., AmerisourceBergen Corp. and others buy prescription drugs in bulk from manufacturers and distribute them to pharmacies, hospitals, nursing homes and specialist doctors who provide intravenous cancer and other drugs in their offices. The wholesalers make a bigger profit on generics than brand-name medicines because multiple generic companies compete for their business in each drug category, generally offering better terms than brand-name drugmakers with a monopoly. And with the products costing far less, fewer dollars are tied up in warehouse inventory.

—Hospitals and nursing homes. Care for Medicare and Medicaid patients, and for many with private insurance, usually is based on a set fee, per day or for a complete round of treatment for an illness or injury. Using lower-priced generics will save them some money until their contracts are renewed, although medicines generally are a relatively small expense, compared with staff salaries, high-tech equipment and facility overhead.

LOSERS:

—Brand-name pharmaceutical companies. After spending hundreds of millions to develop innovative medicines, they get roughly a dozen years without competition, depending on how long it takes from filing for a 20-year patent until animal and patient tests are completed and a drug is approved for sale. Once generics hit, billions in annual sales can evaporate in barely a year.

—TV networks, magazine and newspaper publishers, radio stations and billboard companies. Pharmaceutical companies spent $3.97 billion last year on ads in those venues, according to Nielsen, the information and measurement company. More than half ($2.5 billion) went to TV, where prescription drug commercials are a fixture during news programs. In 2011’s first-quarter, ad spending was up slightly, at $701 million for TV and $1.06 billion for those venues. Many ads are promoting Lipitor and other prescription medicines that have looming generic competition.

LIMITED EFFECT:

—Health insurers. Their contracts with employers and individuals generally build in expectations for lower costs per plan member as new generics are anticipated. In some cases, they might get a short-term benefit from lower drug costs until contracts are renewed.