Generic Drugs: Grabbing a Bigger Slice

by Jonathan J. Darrow

The expiration of the patent on $11-billion-per-year Lipitor® (atorvastatin calcium) last November received wide media attention and was eagerly greeted by consumers, reflecting public excitement that seems to have not yet dissipated.  In the following months, prices “plunged from about $175 a month for Lipitor to about $15 for generics,” according to a recent article in the New York Times. At times it felt as if legions of consumer Davids had triumphed over a corporate Goliath.

Although the public’s euphoria over the availability of cheaper generic versions of drugs is an understandable cause for celebration, price decreases in themselves should not be mistaken for net gains to society.  The societal gains represented by new drugs, to the extent there are any gains at all, come from the new therapeutic benefits that those drugs offer to patients. The entrance of generic competition, on the other hand, merely represents a shift of wealth from one unit of society (originator manufacturers) to another (patients, and also generic drug companies and insurers).

While individual consumers may care little about “net gains to society,” policy-makers should care: If there are no net gains to society from the high prices preceding patent expiration, then perhaps the patent system should be abolished entirely.  That option, however, has not been a serious topic of discussion in the United States since the 1870s. Instead of debating the underlying issues, however, the public’s attention is focused on what is easiest to see: When can I pay less?  One has to wonder, however, what the innovative landscape would look like if more attention were paid to baking a bigger pie, rather than celebrating the newfound ability to grab a bigger slice.

Jonathan Darrow

Jonathan Darrow

Jonathan J. Darrow was a Student Fellow during the 2012-2013 academic year. Currently, he is a faculty member at Harvard Medical School and is a member of the Program on Regulation, Therapeutics, and Law (PORTAL) at Brigham & Women's Hospital. He holds degrees in biological sciences / genetics, law, and business from Cornell, Duke, and Boston College, respectively, as well as a research doctorate in pharmaceutical policy and intellectual property theory from Harvard Law School, where he also completed the LL.M. program. He has been qualified as a patent attorney since 2002. After admission to the California bar in 2001, Dr. Darrow worked on pharmaceutical litigation matters at Wiley Rein & Fielding in Washington, DC, taught on the business law faculties of three universities (2004-2014), served as a senior law clerk for a federal appellate judge, and explored the relationship between innovation policy and global health in service to the World Trade Organization, the World Health Organization, and the World Intellectual Property Organization. He is a co-author of three textbooks, including Cyberlaw: Management & Entrepreneurship (2015) and The Legal and Ethical Environment of Business (forthcoming 2018). His scholarship on health policy and intellectual property has appeared in the British Medical Journal, the New England Journal of Medicine; the Journal of Law, Medicine & Ethics; the Stanford Technology Law Review; the Yale Journal of Health Policy Law & Ethics; and Health Affairs, among many others, and he has testified before a committee of the Massachusetts legislature on an emerging issue of law and technology. He authored Crowdsourcing Clinical Trials (Minnesota L Rev 2014) as part of his Student Fellowship.

0 thoughts to “Generic Drugs: Grabbing a Bigger Slice”

  1. “The societal gains represented by new drugs, to the extent there are any gains at all, come from the new therapeutic benefits that those drugs offer to patients. The entrance of generic competition, on the other hand, merely represents a shift of wealth from one unit of society (originator manufacturers) to another (patients, and also generic drug companies and insurers).”

    This doesn’t seem correct. The price of Lipitor was high due to a government-sanctioned monopoly (ie patent rights). The monopoly pricing would be expected to cause deadweight loss in the form of underconsumption of the drug. The elimination of the monopoly would be expected to eliminate this dead-weight loss. .

    1. Dear AF,
      Thank you for introducing economic theory to the discussion. This is exactly the type of substantive debate that is needed.

      You may wish to consider the following: First, dead-weight loss (DWL) will be small in this context due to inelastic demand, with inelasticity further boosted by health insurance. Second, the availability of generic statins (e.g. simvastatin) prior to Lipitor’s patent expiration further minimize any DWL, since those unable to purchase patent-protected Lipitor could have substituted simvastatin.

  2. Ryancare requires those with a defined benefit plan to switch to a defined contribution plan. Not necessarily a switch that everyone would make if it were a choice.

  3. The net gain cannot be measured by the mere savings to consumers vs the net loss to the drug manufacturer. That transaction is inherently zero sum and the net gain to society is always zero, regardless of how the drug is priced.

    The net gain is measured by the increased health and productivity of the consumer after taking the drug. If there is no improvement in health and productivity greater than the cost of the drug then the the net gain to society is either zero or negative and society would be better off without the drug and the money would be better spent and invested on something else.

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