Good News for the Consumer: FDA is Approving More Generic Drugs
The sharp rise in the price of some generic drugs is finally slowing according to drug channel expert, Adam Fein. In theory, generic drugs face unlimited competition. But the reality is often much different. There are a variety of reasons generic drug prices can climb, including consolidation in the supply chain as well as legal and regulatory reasons that allow drug makers to jack prices up.
The FDA has the power to solve some of these problems. But when it gets bogged down and cannot quickly process applications for new abbreviated new drug applications (ANDAs) fast enough, the opportunity exists for prices to skyrocket. Consider the case of former Turing Pharmaceutical CEO Martin Shkreli. Shkreli bought the rights to a little-used, 60-year old drug called Daraprim for $55 million. Why would Turing Pharmaceutical even want a generic drug that only had a sliver of a market? Because there was only one supplier. Turing could invest $55 million and potentially jack up the price and gouge insurance companies. If Turing was the only supplier it could raise the price from $13.50 to $750, which it did. That $55 million investment could potentially earn $200 million a year for a few years until the FDA could approve a competitor’s drug. That was not likely to happen for several years.
The FDA has sped up its pace by hiring nearly 1,000 new employees. Over the past few years, the agency approved about 400 to 500 generic drugs a year (35 to 45 drugs a month). Yet, since April 2015, it has been approving or tentatively approving 60 to 70 drugs a month. In December 2015 (a short month) it approved nearly 100. That’s good news for consumers. Research shows that the price of a generic drug has an inverse correlation with the number of competitors making the same generic drug.
While this good news is certainly welcome, I wonder why the FDA’s backlog of ANDA’s was ever allowed to get so extended in the first place. It looks like a typical example of poor management to me. Then, when we got enough huge obnoxious price increases on enough generic drugs to noticeably drive up total spending on prescription drugs, it finally reached the radar of elected officials who then went into management by crisis mode.
How did the FDA suddenly find the money to hire 1,000 new people pretty quickly? If the money was in its budget all along, why didn’t it address its backlog of applications much sooner? While Rahm Emanuel told us that we don’t want to let a crisis go to waste, it seems that all too often we have to create a crisis or wait until one happens to finally address problems that were well known and longstanding. That’s apparently how government works unfortunately.
All good questions. It appears that the FDA annually rate of approving applications stayed relatively steady, while the number of submissions increased substantially.
Nearly 90% of drugs filled are dispensed as generic. Maybe the huge increase in applications reflects this growing market.