Generic Onslaught Makes Drug Pricing Decisions More Critical

Armen Hareyan's picture
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Drug Pricing Decisions

In an era of expanding competition from generics, expiring patent protection for many top-selling drugs, and a slowdown in new drug discoveries, there is very little margin for error in drug pricing decisions.

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A new report by Kalorama Information entitled Drug Pricing and Reimbursement Strategies: Preparing for the Coming Generic Onslaught gives pharmaceutical companies the information they need to reevaluate their pricing strategies to remain profitable in a changing marketplace.

Pharmaceutical sales reached $643.0 billion worldwide in 2006, increasing by 6.5% over the previous year, and global pharmaceutical companies have enjoyed a median profitability more than three times the average for all Fortune 500 companies. But companies will be challenged in the coming years: in addition to the onslaught of generics, which have increased their market penetration from 44% to 51.6% in the last couple of years, shrinking government and corporate healthcare budgets are putting pressure on the pricing strategies of pharmaceutical and biotech companies and reducing their margins.

After eight years of double-digit growth, commercial prescription drug costs decreased to the single digits in 2003 and settled at a 4.8% growth rate in 2005.

"The golden years of monopolistic pricing in the United States are gone," notes the report's author, Joseph Constance. "Medicare Part D initiation, tiered managed care formulary systems, and the increasing clout of generic medicines are challenging margins now. Companies will have to adapt to survive, and pricing is one of the few levers they can pull."

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