Priced Out: Generic Therapy Price Competition and Drug Shortages

Published January 29, 2024

Introduction

In the summer of 2023, many oncologists and cancer patients faced an impossible choice. Amidst many challenging treatment decisions, they had to determine how to proceed without two mainstays among oncology therapeutics: cisplatin and carboplatin. While it can sometimes be expected that there may be delays for the newest and most innovative treatments to reach patients, both cisplatin and carboplatin have been available for over twenty years, are used frequently in oncology regimens and are not considered particularly expensive. Unfortunately, the relatively low price of these therapies may have been part of the problem.

Medicine shortages are nothing new in the pharmaceutical industry. For the last decade, the FDA has published an Annual Report on Drug Shortages including the number of annual ongoing drug shortages per year, the number of shortages prevented and the methods used to prevent them, such as the 2020 Coronavirus Aid, Relief and Economic Security CARES Act. In 2022, the FDA reported a total of 49 new drug shortages, 86 ongoing shortages and 222 prevented shortages. The primary causes for drug shortages are quality issues, increase in demand, natural disasters and production discontinuation. A study by ESMO in 2016 found that shortages of established low-cost cancer therapies, including cisplatin, were caused by manufacturing and distribution issues due to the low-profit margins of producing such medicines and subsequent lack of incentive to manufacture them.

Brand vs. Generic Drug Profitability

In 2023, generic drugs and biosimilars accounted for about 90% of prescription volume (relative to 10% for branded drugs), although they made up only 17.5% of prescription drug spend and less than 2% of the total healthcare spend. U.S. generic drug sales have fallen by $6.4 billion in the last five years despite increases in patient utilization. The discrepancy between use and spending is largely due to generics launching with increasingly large discounts, about 80-85%, according to the FDA, relative to their branded version.

Generic drug manufacturers have to maintain low prices to compete with other manufacturers for contracts with the top three wholesalers in the U.S. – AmerisourceBergen, Cardinal Health and McKesson Corporation are responsible for distributing about 92% of prescription drugs in the U.S. If they are unable to secure a contract with one of these major players, manufacturers essentially face market exclusion.

Downward pricing pressure is also exerted by pharmacy benefit managers (PBMs) who set the maximum allowable cost (MAC) for drugs which is factored into their retail price. Although PBMs negotiate rebates with drug manufacturers, there is little transparency around the magnitude of these rebates. Using Medicare Part D data, a cross-sectional study titled Pharmacy Benefit Manager Pricing and Spread Pricing for High Utilization Generic Drugs estimates that for every $100 spent on high utilization generic drugs, $41 goes to the PBM, $17 to the pharmacy, $12 to the wholesaler and only $30 left in revenue goes to the manufacturers. The challenging economics, expenses and low returns further incentivize manufacturers to focus on branded products. Ultimately, manufacturers of these high utilization generics face challenging economics and expenses while receiving low returns.

The Cisplatin & Carboplatin Shortage: A Cancer Crisis

Origins of an Oncology Staple

Cisplatin and carboplatin have been available and frequently utilized in oncology indications for decades.  In 1965 Barnett Rosenberg, a Michigan state biophysics researcher, accidentally discovered the medicinal uses of cisplatin after observing the effect of the platinum-based compound to control cell growth. After experiments treating sarcoma solid tumor mice that left the mice healthy with no apparent return of the tumors, cisplatin was hypothesized to be a potential cancer treatment.

The first clinical trials involving human cancer patients began in 1972 and were led by Bristol-Myers Squibb (BMS) and the National Cancer Institute (NCI). Cisplatin was approved by the FDA in 1978, gaining approvals in metastatic testicular, ovarian and bladder cancers under the brand name Platinol. Cisplatin continues to play an important role in combination therapies for a wide range of solid tumors, including cervical, lung, gastric, breast and head & neck cancers.

While cisplatin demonstrated efficacy as a cancer treatment, it produced severe side effects including kidney damage, leading researchers to continue to search for tolerable cisplatin analogs. One such analogs was carboplatin, a second-generation platinum-based drug which was approved by the FDA in 1989 for the treatment of advanced ovarian cancer and was marketed under the brand name Paraplatin. Today, carboplatin is also used off-label to treat a number of cancers including head and neck, lung, cervical, testicular and bladder cancer.

Patent Expiration and Price Erosion

After decades on the market, carboplatin and cisplatin eventually faced patent expiration, with generic launches starting in 1999 and 2004 respectively. Since then, the branded versions of cisplatin and carboplatin, Platinol and Paraplatin, have been discontinued in the U.S. Now in the U.S. generic versions of both therapies cost approximately $90-$100 monthly, considerably lower than many products for these high mortality oncology indications. However, while the lower generic price may initially seem conducive to patient access, unfortunately the price erosion resulting in low-priced generics has led to supply shortages.

The global journey of cisplatin from manufacturers to patients is a highly regulated process. First, the rare platinum ore is sourced from a few countries, notably South Africa and Russia where it is mined and refined. Upon receiving the platinum, manufacturing facilities based in Germany and India convert it to the active pharmaceutical ingredient, cisplatin. The product is then packaged and labeled in Germany, Italy, India, the Netherlands and the United States, after which it is then distributed globally.

Ultimately, the costs of manufacturing platinum-based therapies stack up and present a challenge to incentivize manufacturers given the low market cost of the drugs resulting from price erosion. The high cost of production, associated supply chain challenges and low generic-like pricing have reduced the number of companies manufacturing these therapies.   

Supply Shortages

The limited number of manufacturers producing cisplatin and carboplatin has left the supply for these therapies vulnerable. In June, Intas Pharmaceuticals, which owns a factory in India responsible for producing about 50% of cisplatin in the U.S., was forced to suspend operations following an inspection by the FDA which found numerous issues with quality assurance. The United States’ continued dependency on foreign drug production has raised major national concerns, especially given oncology drug shortages. However, there is wide recognition of the shortcomings associated with manufacturing generic drugs locally; this would inevitably result in taxpayers, hospitals and patients being forced to pay more for these products.

Future Evolution of Generic Price and Supply

Legislating Price Erosion: The Inflation Reduction Act

Recent legislative decisions in the U.S. may further impact the supply chain of essential therapies. The passing of the Inflation Reduction Act (IRA) introduced a new program where top-selling drugs that have been on the market without generic or biosimilar competition will now face mandatory discounts of at least 25%-60%. As a result, the general trend of price erosion (low-priced generics) causing the unintended consequence of supply shortages is likely to continue.

In oncology, branded products like Paraplatin and Platinol have long been off-patent allowing for numerous cisplatin and carboplatin generics. Although the IRA outlines that generics and biosimilars will be excluded from discount negotiations, the generic market may still be impacted. With the IRA dropping the price of branded therapies substantially prior to generic or biosimilar entry, it will essentially expedite price erosion and disincentivize private manufacturer investment in these therapies once they become eligible for generic or biosimilar competition.

Two therapies selected as part of the first Medicare price negotiation cycle are Stelara (ustekinumab) and Enbrel (etanercept) which are immunosuppressants used to treat psoriatic arthritis. Biosimilars of these therapies are expected to launch in 2025 and 2029, respectively, with Stelara biosimilars having been delayed from an initial anticipated launch in 2023 due to a settlement with Johnson & Johnson. Due to this new process, the reduced size of the branded market value may lead some biosimilar and generic manufacturers to choose not launch. Overall, this new tool for price erosion may expand existing drug shortages rather than improve access.

Globalization, Supply Chain and Manufacturing Costs in Biopharma

When considering the future of profitability, investment and supply within biopharma, another key factor is the increasing globalization of the industry. With global trade so strongly embedded, from cross-continent sourcing of therapy ingredients like for cisplatin and carboplatin, to multi-national clinical trial programs, to the global spread of different manufacturers, the industry relies on a tenuous ecosystem of trade and global collaboration. While price competition has driven some aspects, in addition to natural factors such as resource availability, in many ways the globalization of the biopharma supply chain has created fragility.

Even in markets with more centralized or even single payer healthcare offerings, almost all the biopharma industry remains privatized. Recently in trying to exert greater price pressure on biopharma manufacturers through new pricing laws, some cost-conscience markets are seeing delays or canceled launches of novel therapies. One example of this is in Germany, which following the implementation of the 2022 German Financial Stabilization of Statutory Health Insurance System Act is now seeing manufacturers avoid launching therapies in the country due to strict new price rules. This example demonstrates a potential rising trend: if centralized healthcare systems reduce pricing opportunity to a level that is unprofitable for manufacturers, private biopharma companies may simply choose not to launch in their country.

Ultimately, while governments try to navigate how to bring the cost of therapies down for their healthcare systems and citizens, they will face a difficult task of ensuring that price pressure is weighted against the need to ensure the protection of supply, especially for low-cost generics.

Authors: Maximilian Hunt, Grace Mock, Dana Walters & Gil Assi