Sure, use of generic drugs saves payers — U.S. Gov’t, insurances companies, and patients — money. But does generic competition harm the innovation of new and improved drugs?

According to a report published by the Generic Pharmaceutical Association (GPhA), the answer is no. Let’s look at some of the data.

First, the GPha claims that generic prescription drugs in the U.S. saved about $193 billion in 2011 alone and over $1 TRILLION in the last 10 years (see “Generic Savings in U.S.” for a copy of the report and top figure in the infographic shown here; click here for a full-size view of the infographic).

Given that there is just one prescription drug pie to share, that must mean that the branded pharma industry’s slice has decreased somewhat proportionately, even though the whole pie may has grown over the years (by what %?).

But GPha does not discuss THAT in its report. Instead, it focuses on “innovation” and the defense of the 1984 Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman), which had the dual objectives of incentivizing the development of new brand drugs (the patent term restoration part) and facilitating the approval of generics to lower consumer costs (the drug price competition part).

The Hatch-Waxman Act has recently come under attack as being too favorable to the generic drug industry. An article in the November 2011 issue of Health Affairs, for example, argued that “generic usage has increased so markedly that the incentive to develop new drugs has been harmed” (said GPhA). From the abstract of that article:

“Generic drug usage and challenges to brand-name drugs’ patents have increased markedly, resulting in greatly increased cost savings but also potentially reduced incentives for innovators. Congress should review whether Hatch-Waxman is achieving its intended purpose of balancing incentives for generics and innovation” (see “Evolving Brand-Name And Generic Drug Competition May Warrant A Revision Of The Hatch-Waxman Act“).

As evidence that this is not true, GPha presented new drug approval data from the FDA. The data it presented was similar to the middle chart in the infographic shown here. The GPhA chart only went back 10 years to 2002, whereas the chart shown here goes back to 1994. Although the trend in new drug approvals by the FDA is downward between 1994 and 2011, in recent years (ie, since about 2002), it is trending upward.

Drug approvals by FDA may not be the best indicator of innovation, however. Consequently, I added to the infographic another chart from the FDA that also shows the number of NDAs (new drug applications) filed with the FDA in the last 10 years.

I notice that the number of approvals seems to be directly related to the number of NDAs filed. The FDA often argues that it is not its fault if less drugs are approved in any given year — it’s the fault of fewer NDAs being filed (ie, lack of innovation by the drug industry).

In any case, the GPhA argument seems to have merit. So much so that the branded drug industry — i.e., its trade association, PhRMA — chose not to dispute the evidence, but made lemonade from GPhA’s lemons.

PhRMA pats itself on the back, saying that “without the development of new medicines by innovator companies, there would be neither the new medicines essential to progress against diseases nor generic copies.” Here’s more from PhRMA on that:

“[GPhA’s report] documents one of the many benefits achieved by new medicines developed by biopharmaceutical research companies. Cost savings attributable to generic drugs represent one stage of the prescription drug lifecycle. Such savings are possible because innovator biopharmaceutical research companies – the most research-intensive sector in the U.S. economy – produce medical advances through pioneering scientific work and long-term, expensive investments. Over time, these innovative new medicines lead to generic copies that patients use at low cost for many years” (see “PhRMA Statement on Prescription Drug Costs“).

What do you think?

Does generic drug competition harm the innovation of new drugs?