The U.S. has relied on cheap, effective generic drugs for 40 years. Now that promise is under threat.
This story is part of Race to the Bottom, a special series from Tradeoffs examining the problems undermining the generic drugs we all rely on — and how we could fix them.
Lisa Ann Trainor struggled to stay on top of schoolwork, hold a job or even perform basic tasks like laundry for six exhausting years.
Then, in 2018, she finally found a drug that kept her ADHD in check.
“It was life-changing,” Trainor recalled. “I was happy. I was functional. I had a solution to a problem I thought was never going to go away.”
But just 24 months later, Trainor’s husband changed jobs. Under his new health insurance plan, she’d have to pay roughly $1,000 a month out-of-pocket for Vyvanse, a medication with no generic alternative.
“The hardest part was I knew this miracle existed,” 33-year-old Trainor said, “It had been in my hand, and now I couldn’t reach it.”
Trainor says she fell back into “the dark hole of hopelessness,” the place she’d spent much of her 20s. She limped through the next nearly three years, cycling through medications her insurance did cover, coping with side-effects that left her mouth dry, her thinking scattered and her head often pounding.
Then, last summer, Trainor got word that the FDA had approved the first generic version of Vyvanse. Within just two months, this life-changing treatment was back within Trainor’s grasp.
Her plan covered it.
“It feels silly to be grateful to a pharmaceutical company,” Trainor said, “But it just made my life so much better.”
Since the Hatch-Waxman Act gave birth to the modern generic drug industry in 1984, millions of U.S. patients have gained access to more affordable treatments for everything from cancer to strokes to life-threatening infections.
Collectively, these cheaper copies of brand-name medications have saved patients and the U.S. health care system trillions of dollars, often slashing prices by as much as 85%. Generics now fill 9 out of every 10 prescriptions in America, but an existential question looms over the future of this industry as it turns 40 years old this month.
Will affordable, high-quality generics continue to be there when we need them?
Experts cite three concerns — and several signs that Washington is listening.
1. Our generics supply chain has grown increasingly fragile.
“The market is structured to cut, cut, cut,” said Marta Wosińska, senior fellow at the Brookings Institution. “Something’s got to give.”
Fierce competition between generic manufacturers and consolidation among buyers has spurred a race to the bottom on price for many products.
A recent report from the nonprofit U.S. Pharmacopeia suggests what is at risk appears to be the resiliency of our generic drug supply chain, highlighting that the number of medicines deemed in shortage by the FDA has soared by more than 50% over the last decade.
“The supply chain should have enough redundancy and strength so that it bends but doesn’t break,” said U.S. Pharmacopeia senior vice president Tony Lakavage. “Now there is only enough manufacturing capacity if everything goes perfectly. If there is any problem, for many medicines, the supply chain can’t handle it.
That same report found that the majority of drugs in short supply sell for less than $5.
Researchers and industry executives say intense price pressures have forced some generic manufacturers to exit markets while pushing those that stay to slash costs, including spending on redundancies that keep the supply chain resilient.
“Unless we [pay] more than a cup of coffee for a life-saving drug, the redundancy is the first thing that goes so that you can continue to supply at all,” said Christine Baeder, president of Apotex USA, a generic drugmaker.
In this environment, costs for extra ingredients or manufacturing capacity are luxuries.
“Redundancy is inefficiency,” Baeder said.
Companies looking to cut costs have also increasingly turned to India and China for their manufacturing and ingredient sourcing, exposing America’s supply of generic drugs to additional vulnerabilities.
“If we get into a trade war with China, we’re going to be in deep trouble,” Wosińska said, highlighting one potential threat that the country’s pandemic-era export restrictions made more tangible.
“We are talking about potential disruptions at a whole different level of the supply chain and we have not truly grappled with these kinds of vulnerabilities.”
Lawmakers in Congress have now held five separate hearings on drug shortages over the last year, and proposed a handful of modest reforms. A bipartisan Senate bill, for example, would direct Medicare to offer bonus payments to hospitals who voluntarily sign longer-term contracts with generic manufacturers that lock in prices. The idea is more financial certainty will lead manufacturers to invest more in quality and reliability.
2. Quality concerns are mounting.
As generics manufacturing marches east, the FDA faces growing scrutiny over its ability to uphold quality standards. Recent high-profile manufacturing lapses include tainted eyedrops killing four Americans and FDA inspectors finding that a major manufacturer of cancer drugs had shredded important quality-related documents and destroyed others with acid. Both incidents occurred at firms based in India.
An investigation by the Associated Press found that the FDA is drowning in an inspection backlog, including hundreds of plants in India and China that the agency has not visited since before the pandemic. Agency officials have admitted in recent House hearings to having trouble staffing positions abroad and gaining the access they need to properly inspect facilities.
Still, experts say the FDA’s power to fix these quality problems is limited, and the underlying causes largely trace back to the generic market’s economic woes.
“On the one hand, you’re nickel and diming these manufacturers and on the other expecting them to invest a lot of money to build new facilities and supply good quality medicines,” said Dinesh Thakur, an advocate and whistleblower in the Ranbaxy generic drug fraud scandal.
Wosińska, who previously worked at the FDA, and Thakur both noted that the agency faces immense pressure to avoid triggering drug shortages. About half of all generic drugs only have one or two companies making them, which can put the agency between a rock and a hard place if quality problems arise at one of those firms.
“As long as we are sourcing and buying medicines from overseas, we need a better regulatory model,” Thakur said.
While lawmakers and experts grapple with those potential regulatory reforms, some major health care players are taking matters into their own hands. Both the Department of Defense and health system giant Kaiser Permanente are reportedly piloting the use of a third-party testing company to validate the quality of generic drugs they purchase.
3. Newer, costlier brand-name drugs are harder to copy on the cheap.
As the number of six-figure cancer treatments and million-dollar gene therapies grows, so too does the need for robust competition that can bring reliable financial relief to patients and insurers. But over the last ten years, the cost-cutting cavalry have been arriving more slowly and bearing smaller savings — if they arrive at all.
“We are not getting the price reduction through generic competition that we need for the most expensive drugs ever produced,” said Johns Hopkins history of medicine professor Jeremy Greene. About half of all new drugs launched at the start of this decade had list prices over $150,000.
Over the last four decades since the passage of the Hatch-Waxman Act, brand-name incumbents have built up an arsenal of ingenious ways to thwart competition.
One of the industry’s best, more refined weapons: patents. The average number of patents per drug, including many that have nothing to do with a medicine’s active ingredient, has more than tripled since the passage of the law, according to a forthcoming study by Arizona State professor Bhaven Sampat. AbbVie, the maker of Humira, the best-selling drug of all time, notoriously delayed direct competition for two decades in large part by amassing more than 150 patents.
The barriers only grow once lower-cost competitors snake their way through those patent thickets and arrive on a market. That’s especially true for a class of copycat drugs known as biosimilars, which mimic large-molecule drugs called biologics and are regulated by a different law passed decades after Hatch-Waxman. Unlike traditional generics, many biosimilars cannot be automatically substituted in for the brand drug, which can hamper sales. Insurers and their middlemen also often shun cheaper biosimilars, preferring the fat rebates they’re offered by brand-name drugmakers.
More than two years after that blockbuster drug Humira finally went off patent, its biosimilar competitors had still only managed to wrest away about 20% of that market.
Health policy experts say biosimilars are a vital tool for controlling America’s drug costs going forward. Although the rapidly growing biologics market only makes up about 3% of prescriptions, it already accounts for nearly half of all U.S. drug spending.
The challenges to making money off biosimilars are so great, though, that some industry executives question whether they are worth it.
“If you don’t have a path to a clear return on investment, why would people continue to invest?” said Apotex USA president Christine Baeder, pointing to data showing that bringing biosimilars to market costs at least 10 times what traditional generics do.
Washington is taking some steps to level the playing field. The Federal Trade Commission is scrutinizing what it calls “junk patent listings” and just filed a lawsuit against the middlemen whose perverse incentives can make it more difficult for generics to grab a bigger slice of market share. The FDA has proposed easing certain regulatory barriers that biosimilars face. Members of Congress have also held hearings and introduced legislation on these issues.
But these steps are small. A new report by the Association for Accessible Medicines estimates that north of 80% of brand biologics eligible for competition have no known biosimilar in the works.
Turning the Page on Hatch-Waxman
Some critics believe more sweeping reforms are needed, including retired attorney Al Engelberg, who helped craft the Hatch-Waxman Act.
Engelberg takes pride knowing the landmark legislation achieved a delicate balance between incentivizing innovation by brand drugmakers and fostering competition from generics.
“It was the right thing at that time and we derived a lot of public benefit from it,” Engelberg said.
The law managed to create a generics market that has saved America trillions of dollars while still motivating companies to make some remarkable advancements, like a new cure for hepatitis C.
But as brand monopolies grow lengthier, costlier and harder to break — and cheap, old generics become harder to rely on — that long venerated legislation is showing some unsettling cracks.
“Times have changed,” Engelberg said. “You have to figure out a new paradigm for new times.”
Tradeoffs’ reporting on generic drugs was supported in part by the National Institute for Health Care Management Foundation, Arnold Ventures and West Health.
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