Have generic drug prices hit rock bottom?

By Chris Hanson-Ehlinger
Wed, Jul, 09, 2014 @ 13:07 PM

describe the imageIn recent years, converting from brands to generics held prescription drug trend to near zero. In its 2014 drug trend report, Express Scripts demonstrates that, from a baseline of $100 set in January 2008, prices for the most commonly used generic medications decreased to $46.44 and prices for the most commonly used brand medications increased to $197.

Generic drug use increased from 50 percent to approximately 80 percent in the past 15 years. Yet industry models suggest a maximum utilization rate of 93 percent, which promises only a few more years of incremental value. Are there other ways to generate sustainable value from generics?

It seems so. Historically, generics have been purchased on the spot market and purchasers leverage excess market capacity to secure the best rates. There is speculation that CVS Caremark and Walgreens may be game changers. Each formed strategic relationships that substantially increase the portion of generic drug volume they influence.

What if those relationships could foster market stability? Generic manufacturers operate sophisticated facilities that must meet FDA quality standards. They become extremely profitable when they run at or near capacity. Alignments such as the CVS Caremark and Cardinal Health joint venture, may offer a sustainable advantage—and a new value proposition—for generics. In exchange for guaranteed volume, which would assure efficient operations, generic manufacturers could offer rates much better than those offered in the spot market.

Prime Therapeutics reported in its 2014 Report on Prescription Drug Costs that generic net ingredient cost per prescription is $19.84, yet the medication going into the prescription bottle in many cases costs pennies per pill to manufacture. There appears to be sufficient margin available to reward innovative structures that deliver new value to the market.

What do you think about generic drug prices? How low can they go?

Shawn Patterson is national sales and client management leader at Burchfield. For more information, please call us at 800-778-1359 or send a note to http://www.burchfieldgroup.com/contact/.

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