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Drug importation could drive down price of generics

Written by Diane Archer

Generic drugs used to be synonymous with low prices, but lately drug shortages and price increases have driven up the price of many generic drugs. There are a range of market failures in the generic drug marketplace.  A May 2017 Hutchins Center Working Paper by Thomsas Bollyky and Aaron Kesselheim considers ways to drive down the price of generics through drug importation.

Market failures in the generic drug marketplace need addressing so that Americans have access to affordable drugs. There is far less competition than desirable as generic drug companies have been acquired or merged with other companies. And, incentives for generic drug manufacturers to enter the market appear to be inadequate; 130 drugs that have gone off patent (10 percent of the 1,328 branded drugs) have no company seeking FDA approval to manufacture them.

Even when pharmaceutical companies want to distribute a generic drug, there can be huge challenges. Sometimes the brand-name manufacturer refuses to supply the generic manufacturer with its drug so that it can test for bioequivalence and get FDA approval to market the drug. Sometimes, the brand-name manufacturer takes its drug off the market before the patent expires and replaces it with a second version of the drug–e.g., once a day pill replaces a twice daily pill–delaying the introduction of a generic for the patent life of the second version of the drug.

To address these and other market failures, Senators Grassley, McCain and Klobuchar have requested that Secretary Tom Price allow drug importation from Canada for certain high-priced drugs. And others in Congress have asked the FDA to allow importation from countries that have highly regulated markets when there is inadequate competition. The FDA already can allow importation when there are generic drug shortages. Kesselheim and Bollyky propose a three-part strategy of their own:

  1. Passing the Generic Drug User Fee Act Reauthorization (GDUFA) would give the FDA the needed funds to speed up approval of generic drugs and help to eliminate the backlog of requests. Priority should go to drugs for which there is only one manufacturer.
  2. Allowing the FDA to work with other countries with similar regulatory standards to create a way for drug manufacturers to submit one application for all regulatory authorities, while leaving it to each government authority to determine whether to approve the drug. The data suggest that a number of countries have similar standards for drug regulation.
  3. When there are three or fewer drug competitors in the U.S., allowing the FDA to grant approval of generic drugs for use in the U.S. because they were approved in another country with similar strict efficacy and safety standards, “reciprocal approval.”  As it is, we import one fourth of our drugs–$86 billion in imports.  And four-fifths of the active ingredients in our drugs are imported, along with two-fifths of the finished drugs.

Studying generic drugs for which there is no competition in the U.S. today, Bollyky and Kesselheim found that about two-thirds had competition outside the U.S. These international generic drug sources, if permitted to be sold in the U.S., could help spur competition in the U.S., increasing the supply of these generic drugs, bringing down their prices and ensuring access to critical medicines in the U.S.

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