Biotech Values

[DewDiligence]

Why the U.S. has the world’s highest branded-drug prices:

The conventional wisdom, as described in a Reuters piece today (http://in.reuters.com/article/2013/05/10/us-usa-health-drugs-idINBRE9490UB20130510 ) is that the US has the highest branded-drug prices because of political imperatives and/or greed by the drug companies. However, these explanations miss a major point: the US is one of only a few countries in the world with fully substitutable generic drugs, which causes US branded drugs to lose almost all of their pricing power once they go off-patent.

In most other countries (including most countries in Europe), branded drugs continue to enjoy healthy market share even after patent expiration because generic drugs are not substitutable by a pharmacist or hospital, but rather must be explicitly prescribed (i.e. they are branded generics).

A country can’t have it both ways! If the US wants to maintain the highest penetration in the world for substitutable generic drugs, it follows that the US must have the highest prices in the world for on-patent branded drugs. This is straightforward economics; even the changes brought on by ObamaCare won’t make a significant difference in this regard.