Generic approvals go up, but drug prices don’t go down
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Generic approvals go up, but drug prices don’t go down

Common sense dictates that if more generic competitors are being approved for a drug than they previously were, the price of that drug is likely to go down. But, according to a new report in the US, that’s not what’s happening. While the Food and Drug Administration (FDA) is undoubtedly giving out more generic approvals, drug prices seem to be holding firm. That’s good news for pharmaceutical companies, who will be eager to see their pricing power remain where it is.

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A Pew Report released on Monday notes that the vast majority of generic approvals given out are for drugs that already have one or more generic competitor on the market. This means the effect they have on branded products is less severe – after all, these brands are, by definition, already in competition with cheaper alternatives. Whatever price point they’re currently retailing at is one that’s already been staked out against generic competitors.

This is good news for pharmaceutical companies, and for the people that invest in them. But it might merit a rethink at the top of the FDA. The organisation’s commissioner, Scott Gottlieb, has championed quicker generic approvals as a method for lowering drug prices. In January 2018, he tweeted: “FDA had an all-time record number of generic drug approvals in 2017 at 1,027 -- bringing more low cost, high quality competition to the market and promoting access.”

Here's what the Pew Report had to say on the efficiency of his approach: “The increase in approved drugs was largely driven by approvals of the fourth, fifth, sixth and even later versions of generics. Costs generally decline most significantly once second and third generics enter the market, but versions after the third generic usually reduce prices less effectively.”

Disclosure
Dominion holds a number of pharmaceutical companies in its Global Trends Managed Fund.


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