By Mike Magee, MD If you’ve been to the gas pump lately, or have tried to secure a low interest mortgage, or checked your latest grocery bill, you know that prices are on a double-digit rise.1 That’s part of the reason why the U.S. Labor Department recently double-checked its figures, which showed that the average price of pharmaceuticals over the past year had risen only one percent. As recently as 2005, the annual rate of increase had been 4.4 percent.2 What was going on? To give you the answer, let me explain a few things. First, most of you know that medicine requiring a prescription falls into two basic categories – the newer, more expensive, brand name drugs and the older, less expensive, generic drugs. And while we may think of these two categories as separate, the truth is that they are connected at the hip and the glue is called a patent. What is a patent? A patent is a legal document providing the owner with a period of exclusivity or freedom from competition, intended to allow inventors a reasonable chance of recouping development costs.3 The concept was advanced by our founding fathers because they believed that invention was the fuel that would power our national success. Since 1790, when the system originated, some five million patents have been issued in the United States, in fields as varied as telecommunications, electronics, chemicals, and pharmaceuticals.3 Arguably, the greatest interest and controversy around patents in the public eye today surrounds our medicines. To the discovery companies, patents are viewed as critical. Why? Because it takes 10 to 14 years from initial discovery and an estimated $800 million in research and filing costs with the Food and Drug Administration to bring a drug to market. Of course, if you get a blockbuster drug to market, and you have some years of patent protection left – you’re granted 20 years or so from the initial chemical discovery – you can be a big winner. So for the research companies, it’s a high risk/ high reward business.4 So where do generics fit in? Well traditionally, when a drug’s patent runs out, the value of the product, reflected in its price, drops precipitously. Overnight, the price may decrease anywhere from 60 percent to 90 percent.2,5 Why? Generics! According to the rules of our system, another group of companies, expert at copying existing drugs, atom for atom, are allowed at this point to largely take over production. The FDA insists that these companies prove that what is being created is the same as the parent brand drug. But the companies don’t have to repeat any of the expensive research studies or invest in large advertising and marketing programs, since the drug has already been known and tested for sometimes as much as a decade. As a result, generic drug makers can afford to sell the product at a steep discount and still make a profit.6 This agreement between the FDA, the research companies and the generic companies was approved in 1984 and arguably served all sides well.6 While the research companies have been slow to yield new discoveries of late, the ten years between 1990 and 2000 could easily be called the “decade of blockbusters.”7 As for generics, back in 1975, only 18% of US prescriptions were filled with generic drugs. By 1999, this number had increased to 51%, and today 63% of all U.S. prescriptions are filled with generic drugs.8 This trend, in part, is a reflection of some impressive blockbusters going off patent -- such as Zocor, Ambien and Norvasc. But there’s another element to the story of dropping drug prices, often referred to as the “Wal-Mart effect.”8 One year ago, Wal-Mart announced it would sell 30-day supplies of more than 300 common generic drugs for a flat fee of $4.9 Other large chain stores, such as K-Mart and Target, followed suit. Together they make up close to 20 percent of the retail pharmacies in the United States.8 As a result of the promotion, the volume increased 22 percent, without counting extra retail sales instigated by new customer traffic. Wal-Mart apparently is pleased. They now provide about 350 generics at the $4 rate, and have just announced that their own employees will have access to an expanded list of 2,400 generics at the discount price.8 All of this is good news for the average American. But is there any problem with this picture? Well, just one: For the cycle to continue, the research companies have to continue to discover and prove the value of new medicines. Otherwise the generic companies have nothing in the future to copy. And over the past few years, as the companies have been challenged by rapid advances and changes in genomic science, those new discoveries have been few and far between.10 Who is the biggest supplier of prescription drugs today in the United States? You may be surprised to learn it’s an Israeli’s generic company called Teva Pharmaceutical. But for Teva to do well in the future, Lilly and Merck and Pfizer will have to succeed as well. Without them, there will be no new generic products. All of which is to say, it’s a balancing act. To assure a continuous flow of low-priced “old classics,” we need to continue to discover new medicines, and expand coverage and access so that all Americans reap the benefits of American ingenuity. To pull off that trick, both the research companies and the companies that make generics must succeed. References 1. Kilman, S. “Soaring Demand for Grain Prices Rolls Markets.” Wall Street Journal. 8 September 2007. A1 2. United States Department of Labor. Producer Price Index. Table 2. “Producer price indices and percent changes for selected commodity groupings by stage of processing.” 12 October 2007. http://www.bls.gov/news.release/ppi.t02.htm 3. Lienhard, JH. “The Engines of our Ingenuity. No. 565: A Potash patient.” http://www.uh.edu/engines/epi565.htm 4. Tufts Center for the Study of Drug Development. “Tufts Center for the Study of Drug Development pegs cost of a new prescription medicine at $802 million” (news release). 30 November 2001. 5. Magee, M. “Research Drugs or Generic Drugs.” Health Politics. http://www.healthpolitics.org/program_transcript.asp?p=prog_06. 6. “Drug Price Competition and Patent Term Restoration Act.” FindLaw. http://www.library.findlaw.com/1999/mar/10/130703.html. 7. Discovery of New Drugs: From Basic Research to the Prescription. Source: FDA, Congressional Briefing Series, “Molecules to Miracles.” 1997. As cited in: PhRMA Pharmaceutical Industry Profile 2000. 8. Saul S. Generics “An inflation Therapy.” New York Times. 21 September 2007: C1 9. Wal-mart Pharmacy. $5 Prescriptions. http://www.walmart.com/catalog/catalog.gsp?cat=546834 10. Egelhafer M. “Post-genome science highlights systems biology.” Drug Discovery Today. 1 December 2004. | 
