Pricing Trends in Generic Purchasing

May 2016 : Generic Drugs - Vol. 13 No. 5 - Page #1

Extreme volatility has characterized the generic drug market of late, with drastic medication price increases occurring virtually overnight. In recent years, generic drug price inflation has ranged from 1% to more than 100%, with one drug increasing 17,000%.1,2

This increase in generic drug prices can be attributed, in part, to the decreased rate of Abbreviated New Drug Application (ANDA) approvals by the Food and Drug Administration (FDA).3,4 As the FDA has been unable to keep up with the increasing number of ANDAs submitted by manufacturers—submissions have risen from 827 in 2008 to a high of 1418 in 2014—a substantial backlog of pending applications has built up.3,4 The application backlog has decreased the amount of competition in the marketplace, leading to a rise in generic drug prices. Fortunately, the FDA has committed to decreasing the time to approval for ANDAs, allowing more products to enter the market at a faster rate (see SIDEBAR 1). As a result, the cumulative gap for ANDAs did not rise substantially from 2014 to 2015.4 (See FIGURE 1 for ANDA submissions and approvals by select fiscal year.4)

With more rapid ANDA approvals, generic price inflation may be kept in check by the increasing competition in the marketplace. In fact, some have projected that generic prices could decrease throughout 2016 and into 2017.5 Nevertheless, even as more ANDAs are approved, the consolidation among generic manufacturers means more product lines are combined or discontinued, resulting in less competition.

Trends in Price Increases

A major factor in determining which generic drugs will experience price increases is the number of manufacturers producing a given medication. When market competition decreases (ie, fewer generic manufacturers), price inflation typically ensues.2

An additional factor contributing to drug price increases is the frequency of shortages. Shortages occur for a variety of reasons, including subpar manufacturing practices, difficulties obtaining raw materials, as well as consolidations and mergers resulting in a limited number of producers.6,7 Regardless of the cause, drug shortages put a strain on supply, and with demand constant, prices often rise rapidly. Injectables are at particular risk for price increases, as they have more stringent manufacturing requirements leading to more frequent supply disruptions.

While it is difficult to predict the daily fluctuations in drug pricing, as a rule, drugs produced by multiple suppliers with reputations for following current Good Manufacturing Practice (cGMP) will exhibit steady or decreasing prices, while products with limited suppliers are subject to volatile pricing.

Impact of Regulatory Actions on Pricing

On March 11, 2016, The Centers for Medicare and Medicaid Services (CMS) proposed a mandatory demonstration for Part B drug payment, with the goal of testing a new reimbursement model to determine if it would translate into more efficient use of Medicare’s funds while ensuring that the quality of care is not negatively impacted.8 Historically, the reimbursement model has used the Average Sales Price (ASP) plus 6%. With this approach, the most expensive drugs are entitled to higher add-ons, which runs the risk of encouraging health care professionals to prescribe expensive drugs. The ASP model does not take into account product acquisition costs, the effectiveness of the agent being used, or the cost of alternative drugs that may be clinically

The proposed model is slated to go into effect in late 2016, but there is some uncertainty surrounding implementation dates. Nevertheless, this will be a two-phase model:

  • First, the current ASP plus 6% will be changed to ASP plus 2.5%, plus a flat $16.80 per drug. Decreasing the add-on percent will likely reduce the reimbursement associated with high-cost agents.8
  • The second phase is projected to begin in January 2017, and will require the use of value-based purchasing (VBP) tools as part of the prescribing process, which CMS believes will ensure more efficient spending.8

Aging production lines also contribute to generic drug price increases. Some older manufacturing plants struggle to meet FDA-mandated cGMP requirements due to lackluster quality, and have been mandated to halt production until compliance is achieved. According to the FDA, shortages of injectable generic products are commonly the result of quality compliance issues.9 The agency estimated that a little more than 50% of supply disruptions for sterile injection drugs are caused by quality problems in the manufacturing processes.9

In addition, patent expiration rules impact generic drug price increases. The first generic manufacturer that successfully challenges a patent is granted 6 months of limited market exclusivity. During this period, the first-filer can charge prices as high as 94% of the price of the branded drug.9 Additionally, the first-filer can renounce its rights to manufacture the generic product by entering into a pay-for-delay agreement with the originator company.2

The Federal Trade Commission estimates that about $3.5 billion is spent annually to delay competitors entering the generic market, at the expense of consumers.9 In response, legislators have introduced the Protecting American Talent and Entrepreneurship Act (PATENT Act) with the goal of ending abusive patent litigation practices. Among other provisions, this bill intends to clarify pleading standards, protect end users targeted for patent infringement, and increase transparency surrounding how patents are asserted in a lawsuit.10

Another contributing factor to price increases is the FDA Unapproved Drugs Initiatives (UDI), which addresses drugs that were manufactured before the Food, Drug, and Cosmetic Act of 1938, and thus never received formal FDA approval.9 The FDA asks that these drugs be removed from the market and replaced with approved versions.9

Manufacturers that complied with the FDA request by conducting trials to meet the requirements increased the prices of their medications to recoup expenses. For example, colchicine, which previously cost pennies per pill, increased to $5.00 per pill. Similarly, neostigmine increased by 522% as a result of the UDI.9

Changing Utilization Trends

In October 2015, the Health Care Cost Institute, Inc, presented its 2014 health care cost and utilization report, which showed a 3.2% increase in utilization of generic prescriptions from 2013 to 2014 (see FIGURE 2).11,12 While generic prescription utilization continues to increase, the year-to-year utilization rate has slowed since 2011.

Patent expirations allow for the entry of competing generic medications into the market and, as a result, drive down the cost associated with drug spend. In the coming years, drug purchasing will be significantly impacted as generics enter the market for many high-cost medications, including oral, injectable, and biologic products. In fact, approximately $217 billion worth of originator products will lose patent protection by 2018.13

While the potential for savings remains promising, it is important to note that the initial discount realized from one generic or biosimilar challenging the innovator product is relatively small at about 5% to 10%.2 However, as additional competitors enter the market, more drastic decreases in price will ensue.

Budget Planning

Establishing an effective pharmacy budget depends, in part, on predicting changes in generic prices. Health care institutions must have effective monitoring strategies in place to stay abreast of the rapid changes in this marketplace. In addition, formulary drugs with the highest impact on the budget should be flagged for close oversight. Aggressive monitoring, as well as other factors such as changes in volume, discontinuation of products, acquisitions, mergers, and new product introductions, should be considered as part of the budget projection process.

Typically, drugs that lack competition will increase in price, whereas those with significant competition will decrease in price. As such, biologics will be a key area moving forward, as the introduction of additional biosimilar products may drive down the cost of care in this category (see SIDEBAR 2). Conversely, anti-infective/acne and cardiovascular agents are among the medication classes that are likely to increase in price. Specific agents that may drive up costs include ofloxacin, doxycycline hyclate, erythromycin ethylsuccinate, nitroglycerin, nitroprusside sodium, and furosemide.3

Regulatory developments also can impact the budgeting process. For example, the FDA’s final rule on generic drug labeling is expected in July of this year. The proposed rule would permit generic drug manufacturers to update safety labeling without FDA approval. The goal of the rule is to increase generic companies’ involvement in drug safety labeling. Supporters of the rule posit that timely access to updated safety information is critical, because once generics reach the market, manufacturers of brand-name drugs may be less vigilant about labeling updates due to lower market shares of their branded products.14 Those opposed to the rule argue that it contradicts the sameness principle of the Hatch-Waxman Act, and that generic companies do not have the necessary information to update labels. Industry representatives warn that passing this rule will cause an increase in generic drug spending by 5.4%, adding an additional $4 billion to the nation’s annual health care costs and resulting in higher generic drug prices for consumers.14 The FDA is currently accepting comments about the rule.15

Consider also the ongoing congressional investigation into the extreme rise in generic prices. Although any congressional actions are unlikely to be instituted prior to the November election, practitioners should continue to monitor evolving legislative activity in this area.


  1. Understanding Recent Trends in Generic Drug Prices. Department of Health and Human Services. ASPE Issue Brief. January 2016. Accessed April 4, 2016.
  2. Herrick DM. What Is Increasing the Cost of Generic Drugs? (Part I: The Supply Chain). National Center for Policy Analysis. September 2015; Policy Report 371. Accessed April 5, 2016.
  3. Drug Price Forecast January 2016. Vizient 2016; p.1-75.
  4. FDA/GPhA Quarterly Meeting on GDUFA. US Food and Drug Administration. March 2015. Accessed April 21, 2016.
  5. Fein AJ. The FDA Is Finally Ending Generic Inflation—and Hurting Wholesaler Profits. Drug Channels. February 2016. Accessed April 5, 2016.
  6. How We Cut Pharmacy Trend by More Than 50%. CVS Health. Insights. February 2016. Accessed April 5, 2016.
  7. Frequently Asked Questions About Shortages. US Food and Drug Administration. Drugs. November 2015. Accessed April 5, 2016.
  8. Medicare Program; Part B Payment Model. Federal Register: The Daily Journal of the United States Government. March 2016. Accessed April 5, 2016.
  9. Herrick DM. What Is Increasing the Cost of Generic Drugs? (Part II: Regulatory and Legal Reasons). National Center for Policy Analysis. October 2015; No. 373. Accessed April 5, 2016.
  10. Grassley C. Senators Aim to End Patent Abuses that Cost US Economy Billions of Dollars Every Year. April 2015. Accessed April 5, 2016.
  11. 2013 Health Care Cost and Utilization Report. Health Care Cost Institute Inc. October 2014. Accessed April 5, 2016.
  12. 2014 Health Care Cost and Utilization Report. Health Care Cost Institute Inc. October 2015. Accessed April 5, 2016.
  13. Generating Value in Generics: Finding the Next Five Years of Growth. Insights into Pharmaceutical and Medical Products. McKinsey & Company. May 2013. Accessed April 5, 2016.
  14. O’Rourke K. Industry, Patient Advocates at Odds on Gen Drug Labels. Pharm Pract News. May 2015;42(5):6.
  15. Gilchrist A. Controversial Generic Labeling Rule Slated to Be Released in July 2016. Pharmacy Times. January 2016. Accessed April 5, 2016.

Ginger J. Ertel, PharmD, is a director for clinical pharmacy services at MedAssets. She received her doctorate of pharmacy from the University of Missouri-Kansas City and completed a PGY1 pharmacy practice residency at The Johns Hopkins Hospital. Ginger’s professional interests include applying technology, implementing change, and improving medication safety practices.

The author would like to acknowledge the contributions of Noah Ayika, Southern Illinois University Edwardsville College of Pharmacy Intern, and Neil Shah, St. Louis College of Pharmacy Intern, in researching and preparing this article.


FDA’s Implementation of the GDUFA

Janet Woodcock, MD, Director of the Center for Drug Evaluation and Research at the FDA, testified before the Committee on Oversight and Government Reform on February 6, 2016, describing the steps FDA is taking to implement the Generic Drug User Fee Amendments (GDUFA) of 2012 and clear the large backlog of ANDAs resulting from the increased number submitted in recent years. The full text of this testimony is available at


Impact of Biosimilars on Generic Pricing

The Biologic Price Competition and Innovation Act of 2009 (BPCI Act) introduced an abbreviated pathway for FDA approval of products that are highly similar to or interchangeable with an innovative biological product.1 As new biosimilar agents enter the market, the increase in competition is expected to improve patient access.

Biosimilars have experienced slow market penetration, with only one product, Zarxio, currently approved for use in the United States. However, biosimilars will play an important role in medication spend moving forward as more products come to market. Some high-utilization, high-cost biologics are scheduled to lose patent protection from 2016 to 2019 (see SIDEBAR TABLE 1).

These patent expirations will allow multiple manufacturers to enter the market via a less extensive application process, which could result in increased market competition and substantial cost savings (see SIDEBAR FIGURE 1). In terms of budgeting, until there are three or more competitors producing a medication, there may not be significant savings. In addition, manufacturing a biosimilar is a costly undertaking; as such, the margins realized from biosimilars are unlikely to match the margins experienced with generics.

Sidebar Reference List

1. Guidance Compliance Regulatory Information. Food and Drug Administration. Accessed April 26, 2016.

2. Biosimilars of Epoetin Alfa. Generics and Biosimilars Initiative. June 2014. Accessed April 25, 2016.

3. Drug Price Forecast 2016. Vizient. January 2016. p.1-75.

4. US $54 Billion Worth of Biosimilar Patents Expiring before 2020. Generics and Biosimilars Initiative. Accessed April 25, 2016.

5. Biosimilars of Cetuximab. Generics and Biosimilars Initiative. Accessed April 25, 2016.

6. Amgen’s 2015 Revenues Increased 8 Percent to $21.7 Billion and Adjusted Earnings Per Share (EPS) Increased 19 Percent to $10.38. Accessed April 25, 2016.

7. Annual Report 2015. Annual Meeting of Shareholders 2016. Johnson & Johnson.
474857DD-8E67-43B1-BB38-0A9712D93545/2015_annual_report_.pdf. Accessed April 25, 2016.

8. Medicines Use and Spending in the U.S. A Review of 2015 and Outlook to 2020. IMS Institute for Healthcare Informatics. April 2016. p1-54.

9. 2015 Annual Report. Bristol-Myers Squibb.
487185371/files/doc_downloads/2015-BMS-AR.pdf. Accessed April 25, 2016

10. Roche Finance Report 2015. Accessed April 25, 2016.

11. The $250 Billion Potential of Biosimilars. Express Scripts. April 2013.$250-billion-potential-of-biosimilars. Accessed April 5, 2016.


Like what you've read? Please log in or create a free account to enjoy more of what has to offer.

WHERE TO FIND: Generics Manufacturers

Current Issue

Enter our Sweepstakes now for your chance to win the following prizes:

Just answer the following quick question for your chance to win:

To continue, you must either login or register: