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The Misery of Pfizer Could Be The Joy Of Texas: Generic Drugs Are On The Rise

Aug 22, 2007
Pfizer can't be happy. Its patent on the best-selling drug in the world, Lipitor, expires in 2011, which doesn't give the pharmaceutical giant much time to figure out how to compensate for the billions of dollars in sales that will be lost when it happens, courtesy of generic companies reproducing the medicine's active ingredients. The United States alone buys $5 billion worth of the brand-name drug every year.

It's hard to believe that the world's greatest selling pharmaceutical medicine is a treatment for cholesterol, rather than for some horrible, chronic illness well, that is until one considers it purely from a business perspective. Heart disease is still the number one killer of Americans, and one-third of all deaths in this country in 2004 were attributed to it. That means big bucks for companies that can market a treatment for this exploding, life-threatening problem.

Consumers can save up to fifty percent on prescription drugs, according to the Food and Drug Administration, if they just buy generic. Generic drug companies, health insurance providers, and patients alike are practically salivating in anticipation; Lipitor's expiring patent means that not only can other pharmaceutical companies reproduce the coveted, and much guarded, active ingredients, but also that dramatic price slashes will happen for consumers. Texas, with the majority of its population now obese -- a risk factor for heart disease -- and twenty-five percent of its population going without any health insurance, particularly stands to benefit from more cost-effective medication.

But Pfizer shouldn't feel so bad; Lipitor is not the only one. In fact, experts are predicting a golden era for generic drugs as patents on several high-dollar medications come due over the next few years -- $60 billion a year worth -- including Ambien, Norvasc, Zyrtec and Fosamax. Johnson & Johnson announced last week that it will eliminate close to 5,000 jobs in preparation for the generic reproductions of Risperdal, a drug for schizophrenia, Topamax, a seizure medication, and other medicines used for migraines. In 2009, Prevacid's formula, as well, relinquishes its secrets, a heartburn and ulcer drug producing $3.5 billion in annual sales.

While advances in treatments for cancer and other potentially fatal illnesses seem promising, few new medications with mass-market appeal are waiting to replace the old. While this is bad news, indeed, for pharmaceutical giants, it seems to be great news for the rest of the population.

Such patents expiring, without comparable replacements waiting, means the drug price inflation rate will remain under ten percent, despite the aging population's ever-increasing need for medication. This figure has almost always been in the double digits in recent years, according to Steven B. Miller, chief medical officer for ExpressScripts, which manages drug benefit plans. In 2002, in fact, it was eighteen and a half percent. "(The inflation rate) is much better than it was in the '90s, before these drugs starting going generic," said Miller.

Ronny Gal, analyst for Sanford C. Bernstein, which follows generic companies' activities, predicts a ten to thirteen percent growth in the generic drug industry by 2010. "(The change) is good for everybody but the branded pharmaceutical companies."

The high sticker price of many brand-name pharmaceutical drugs is, to a large extent, due to their research and development processes; industry leaders must invest billions of dollars and spend years of time to create a viable medication. They, then, make up for such significant initial costs by setting a high sale price, thereby ensuring billions in profits. Generic companies, on the other hand, do not invest such time and resources on development, which is one of the many reasons they can sell their versions anywhere from thirty to eighty percent cheaper, though they meet the same quality standards and contain the same active ingredients.

"(The lack of new drug formulas is) basically a failure of innovation," said Richard T. Evans, a consultant with Avos Life Sciences, a research and consulting firm for the drug industry.

Part of that industry, however, protests such claims. Caroline Loew, senior vice-president for scientific and regulatory affairs for the Pharmaceutical Research and Manufacturers of America, a trade group for brand-name companies, defends the ups and downs of the process. "I don't think we would support the contention there's a lull." Finding treatments for chronic and complicated diseases, like Alzhiemer's, Parkinson's, and cancer, takes more time and effort than for other conditions. The production of pharmaceutical drugs is "very much an emerging science," she said, and "the biological mechanisms are very poorly understood."

The high price of brand-name pharmaceutical medications and the exploding number of those going without health insurance have combined to create a growing demand for less expensive, imported drugs. Finding the cost of their medications too much to bear, many Americans are turning to Canada and Mexico to meet their pharmaceutical needs, despite warnings against possible safety issues. Though statistics on just how many are getting their medications from foreign sources are difficult to document, border states are especially susceptible to such temptations. A trip across international lines, after all, is under a day's drive away for most Texans.

The additional criticism that drugs cost thirty to fifty percent more in the U.S. than in Europe, due to the for-profit structure of the domestic pharmaceutical industry, only adds fuel to the fire on the debate over universal health care. With healthcare systems in cities like Dallas, Houston, and Austin nearly crushed by the flood of uninsured coming in from other parts of the state to receive care, it's easy to see where the argument for universal coverage may have some validity.

Research and proper investing seem the most viable solution to the current problem of high-cost prescription drugs in the U.S. Investing in a health insurance plan appropriate to one's needs and researching the availability of generic drugs can dramatically reduce one's healthcare costs. In fact, sixty percent of prescriptions written in this country are for generic medications, and that number is expected to rise. Patients also have the right to ask for a generic version, if available, to cut costs. As usual, much of a patient's outcome depends on his or her willingness to be assertive and research those issues dramatically affecting personal health. To keep its high profits going, Pfizer is just going to have to come up with some new innovation to amaze us, and to save us, from the overwhelming tide of disease.

Being aware of issues affecting the cost of healthcare is an important aspect of minding your health. How you take care of yourself will certainly affect you as you age, and eventually your wallet, as well.
About the Author
Pat Carpenter writes for Precedent Insurance Company. Precedent puts a new spin on health insurance. Learn more at Precedent.com
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