Signature
P_g = P_b * (1 - k); C_ann = P_b * (1 - k) * N_d
| Inputs | Definition | Unit |
|---|---|---|
P_b | Brand price per dose in the period before generic entry, at the same price level as the reduction | dollars per dose |
k | Reduction in price relative to the pre-entry brand price, at least 0 and at most 1 | proportion |
N_d | Number of doses used by one patient in a year | doses per year |
P_g | Modelled price per dose once generics have entered | dollars per dose |
|---|---|---|
C_ann | Modelled acquisition cost per patient per year after entry | dollars per patient per year |
Function
Average bioequivalence and generic price function
For an ANDA, bioequivalence to the reference listed drug is shown when the 90% confidence interval for the ratio of geometric means of a pharmacokinetic measure, such as AUC or Cmax, lies within 80.00% to 125.00% after rounding. The interval is computed on the log scale and exponentiated. For economic models, the approval of generic competitors is then translated into a post-entry price.
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Implementations
Excel
Post-entry price and annual cost
With the brand price in BrandPrice, the reduction in PriceReduction and the doses a year in DosesPerYear, the formulas return the generic price and the annual cost.
=BrandPrice*(1-PriceReduction); =BrandPrice*(1-PriceReduction)*DosesPerYear
Assumptions
Price level of the reduction matches the price used
The FDA reductions measured with average manufacturer prices apply to manufacturer-level prices; the invoice-price reductions apply to pharmacy purchase prices. The reduction and the brand price come from the same level.
Immediate and complete switching
Every dose switches to the generic when it enters and the reduction applies from that date. In practice some use stays with the brand, entrants arrive over time and the timing depends on patent challenges, the 30-month stay and 180-day exclusivity.
Worked examples
Four generic competitors at manufacturer prices
Using the article's example, a brand costing 10 dollars a daily dose meets four generic competitors, a median AMP reduction of 79% in the FDA analysis. The generic price is 2.10 dollars a dose and the annual cost 766.50 dollars, against 3,650 before entry.
P_b = 10; k = 0.79; N_d = 365; P_g = 2.10; C_ann = 766.50
One generic competitor at manufacturer prices
With a single generic producer the median AMP reduction was 39%, giving 6.10 dollars a dose and 2,226.50 dollars a year.
P_b = 10; k = 0.39; N_d = 365; P_g = 6.10; C_ann = 2226.50
Common errors
Applying a manufacturer-level reduction to pharmacy prices
The 79% reduction is measured on average manufacturer prices, which exclude wholesaler mark-ups. For pharmacy purchase prices the FDA analysis reports 73% with four competitors.
Treating median reductions as a forecast for one drug
The FDA figures are medians across products with first generic entry between 2015 and 2017 and do not predict the path for a particular drug or for another country's prices.
Sources
FDA analysis of generic competition and prices
Conrad R, Lutter R. Generic competition and drug prices: new evidence linking greater generic competition and lower generic drug prices. Silver Spring, MD: US Food and Drug Administration; December 2019. Median generic-to-brand price ratios for drugs with initial generic entry from 2015 to 2017, relative to the brand price in the three months before entry: reductions of 39% (AMP) and 31% (invoice) with one producer, 54% and 44% with two, 79% and 73% with four, and more than 95% with six or more.
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