Generic drugs in the U.S. face new economic pressures 40 years on

This September marks 40 years since the birth of the generic drug industry in the United States. Nine out of every 10 prescriptions in the U.S. are filled by a generic drug. Generics — effectively copies of brand-name medications — saved Americans nearly $450 billion last year alone. But a lot has changed in these last four decades. These days, big players are leaving the business. Shortages are now the norm, and expensive cutting-edge therapies are harder to make for cheap.

So will we still be able to depend on affordable, high-quality generics being there when we need them?

Leslie Walker is a senior producer and senior reporter with the health policy news organization Tradeoffs, which has just released a new podcast series on this called “Race to the Bottom.” She spoke with “Marketplace Morning Report” host Sabri Ben-Achour for more on this. The following is an edited transcript of their conversation.

Sabri Ben-Achour: This is an industry that we’re all very much familiar with. It’s been very successful. Why is it in so much trouble now?

Leslie Walker: Yeah, so this whole story starts when two lawmakers — Democrat Henry Waxman of California and Republican Orrin Hatch of Utah — team up to try to tackle high drug prices. So in 1984, the pair landed on this very American solution: Rather than try to regulate prices the way a lot of countries do, they decided to harness the power of the free market. Basically saying, if we just make it easier for companies to copy brand name drugs on the cheap, then generic competitors will pour in and bring prices down — at least for most drugs.

Ben-Achour: And that happened, right? For drugmakers, consumers, it has brought prices down.

Walker: It absolutely has. I mean, this market has saved us trillions of dollars. Millions of Americans take cheap generic drugs. During the industry’s heyday, this one executive, Christine Baeder, told me, companies could make a million dollars a day. Plus, you knew you could do a lot of good for people. And Christine told me she once used that idea of social good to motivate this fleet of truckers to get a new generic asthma drug into pharmacies as fast as possible.

Christine Baeder: I actually wrote a personal letter, and I explained that our price was more than 55% off the brand’s list price. So it would really make a difference to people.

Walker: Her phone started ringing off the hook with truck drivers.

Baeder: They were calling and saying, “Hey, I’m hitting weather in Omaha. I might be a little late, but I’m still going.”

Ben-Achour: I mean, this sounds like a very successful business model, right? So where do things start to go wrong?

Walker: It was very attractive. Lots more companies start to jump in, and before long, this competition that Hatch and Waxman had hoped to foster kind of went into overdrive. Economists told me that now the prices of some drugs are almost too cheap. That’s forcing companies to cut corners or exit the market altogether, causing shortages of more than 100 medicines in 2023, including critical cancer treatments and antibiotics. At the same time, brand companies have found ingenious ways to extend some monopolies, like playing games with patents and delaying generics from entering some markets.

Ben-Achour: I mean, that’s wild — that competition has sort of undone itself in a way. So how do we fix that?

Walker: There’s a lot of action in Washington right now. The headline probably is this draft bipartisan Senate bill that incentivizes hospitals to buy generics differently. Basically, they get bonus payments if they sign longer-term deals with drugmakers, rather than jumping ship anytime a cheaper offer comes along. The people I’m talking to told me they see this as a pretty serious bill. That said, the politics are tricky here, if only because the bill would be propping up drugmakers. Tough optics on that.