Relative prices of brand and generic drugs

Part 1, and the GPhA report on cost savings from generics, and prices of generics relative to brand in 2015.

The US based Generic Pharmaceutical Association (GPhA) has issued its 8th annual survey of cost savings due to generic medicines. (Copy here). The data they present comes from QuintilesIMS Institute.

The leading shout-out from the report is that generic drugs saved U.S. consumers and third party payers $227 billion in 2015.

One can also use the data from QuintilesIMS to calculate the relative prices of brand and generic drugs. The GPhA report says:

“Generics make up 89 percent of prescriptions dispensed but only 27 percent of total medicine spending. Put another way, brand name drugs are only 11 percent of prescriptions but are responsible for 73 percent of spending.”

Source: 8th Annual 2016 Generic Drug Saving & Access Report, GPhA. Page 5.

From these ratios, (Generic Prescriptions / Total Prescriptions) = .89 and (Generic Revenues / Total Revenues) = .27, one can calculate the ratio of Generic Prices / Brand Prices.

We can use the following notation:

  • generic revenue = R_g,
  • brand revenue = R_b,
  • generic prescriptions = Q_g, and
  • brand prescriptions = Q_b.

Using this notion, we can express the normalized price of generic and brand prescriptions as follows:

  • R_g / Q_g is the normalized price for a generic prescription.
  • R_b / Q_b is the normalized price for a brand prescription.

The ratio of generic to brand prices prices is (R_g/Q_g) / (R_b/Q_b), which can be rearranged as ( R_g/R_b ) * (Q_b/Q_g).

Substituting normalized values for each variable, we have (.27 /.73 ) * (.11 / .89) = .0457.

The ratio of brand to generic prices is the reverse, or 1 / .0457 = 21.9.

In 2015, brand name drugs were 21.9 times more expensive, on average, than generic drugs.

In 2015, generic drugs were 4.57 percent of the cost of brand drugs, on average.

In Part 2, we drill down a bit more, and unbundle brand generics and unbranded generics.

Part 2, brand, branded generic and unbranded generic relative prices, 2005 to 2015, from IMS data

Statistia reports data from IMS for the years 2005 to 2015, for revenue and prescription shares of brand, branded generics, and unbranded generics. This allows us to calculate relative prices for the branded and unbranded generics, compared to the brand name drugs, for each of the 11 years. The data are here:

The prices for prescriptions of branded generics and unbranded generics (expressed as a ratio to brand drug prescription prices) are as follows:

.... Branded Unbranded
Year Generic Generics
2005 .507 .086
2006 .497 .084
2007 .478 .071
2008 .477 .058
2009 .486 .053
2010 .470 .054
2011 .454 .051
2012 .423 .046
2013 .393 .040
2014 .335 .035
2015 .311 .030

Note that in recent years, branded generics are an order of magnitude more expensive than unbranded generics.

Unbranded generic drugs are just 3 percent the cost of brand drugs.

Brand name drugs are 33 times more expensive than unbranded generics.