Generic But Expensive: Why Prices Can Remain High for Off-Patent Drugs

25 Pages Posted: 21 Aug 2019

See all articles by Frazer Tessema

Frazer Tessema

Program On Regulation, Therapeutics, And Law (PORTAL), Brigham & Women's Hospital / Harvard Medical School; Yale University

Aaron S. Kesselheim

Brigham and Women's Hospital/Harvard Medical School

Michael S. Sinha

Harvard-MIT Center for Regulatory Science, Harvard Medical School; Program On Regulation, Therapeutics, And Law (PORTAL), Brigham and Women's Hospital and Harvard Medical School

Date Written: July 25, 2019

Abstract

Brand-name prescription drugs are sold at extremely high prices in the US because patents and other market exclusivities provided by the government allow manufacturers to exclude direct competition. This period of market exclusivity was intended for pharmaceutical manufacturers to recoup costs associated with research and development of those products and make profits. The other intended outcome of this system is that the market exclusivity period for brand-name drugs should be self-limited, with competition being able to flourish after the market exclusivities end. Such competition has been most effectively supplied by generic drug manufacturers that produce Food and Drug Administration (FDA)-approved bioequivalent versions of the brand-name product. The market entry of these generic drugs — with market uptake augmented by automatic substitution of brand-name prescriptions at the pharmacy — remains the only market intervention that lowers prescription drug prices consistently and substantially.

Generic manufacturers can make their drugs available at considerably lower cost because of various market advantages they have over brand-name drugs. When this process does not operate as intended, drug prices do not fall after market exclusivity expiration, or prices for generic drugs may actually increase. In this paper, we examine the variety of factors that mitigate the cost savings associated with introduction of interchangeable generic drugs, especially older, off-patent drugs. We then consider policy solutions that may help stabilize the generic drug marketplace, diminishing the frequency and impact of generic price increases.

Keywords: Food and Drug Administration, FDA, Drug Prices, Generic Drugs, Importation, Drug Shortages, Off-Patent Drugs, Niche Markets

JEL Classification: K00, K20, K23, I11, I18, M21, M48

Suggested Citation

Tessema, Frazer and Kesselheim, Aaron S. and Sinha, Michael, Generic But Expensive: Why Prices Can Remain High for Off-Patent Drugs (July 25, 2019). Hastings Law Journal, Forthcoming (Volume 71, Issue 4, May 2020). Available at SSRN: https://ssrn.com/abstract=3439023

Frazer Tessema

Program On Regulation, Therapeutics, And Law (PORTAL), Brigham & Women's Hospital / Harvard Medical School ( email )

1620 Tremont St.
Suite 3012
Boston, MA 02120
United States

Yale University ( email )

New Haven, CT
United States

Aaron S. Kesselheim

Brigham and Women's Hospital/Harvard Medical School ( email )

1620 Tremont St
Suite 3030
Boston, MA 02120
United States
617-278-0930 (Phone)
617-232-8602 (Fax)

HOME PAGE: http://www.PORTALresearch.org

Michael Sinha (Contact Author)

Harvard-MIT Center for Regulatory Science, Harvard Medical School ( email )

200 Longwood Avenue
109 Armenise Research Building
Boston, MA 02115
United States

HOME PAGE: http://hits.harvard.edu/the-program/center-for-regulatory-science/home/

Program On Regulation, Therapeutics, And Law (PORTAL), Brigham and Women's Hospital and Harvard Medical School ( email )

1620 Tremont Street
Suite 3030
Boston, MA 02120
United States

HOME PAGE: http://www.portalresearch.org

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