Are brand name drugs more effective?

It’s no secret: drugs are big business. How big? According to the 2015 CMR International Pharmaceutical R&D Factbook, global drug sales reached $1 trillion in 2014, with the figure set to reach at least $1.3 trillion by 2018.

Accounting for this enormous figure are both branded and non-branded (commonly referred to as generic) medications. Now although you’re most likely familiar with the terms, you’d be forgiven for not quite understanding the full story behind it all.

In a nutshell, branded and generic pharmaceuticals essentially co-exist in the drug market due to the way new medications are researched and funded. Standard practice is for one of the large pharmaceutical companies to undergo several intensive and costly rounds of research and development before a drug can be approved for use.

These large companies patent their new medications, meaning other companies cannot produce them for a set period. In the United States, this is typically 20 years from the date of initial development, and allows the original inventor of the drug time to recoup those massive R&D costs. Once the patent is up, generic manufacturers can start making the drug, with many similar drugs then arriving on the market at wildly varying prices.

According to America’s Food and Drug Administration (FDA), which approves all new medications, the average cost of a generic drug is around 80-85 per cent lower than its branded rival.

Breaking down the effectiveness myth

Are brand name drugs more effective? The answer is as short as it is simple: No. For a generic drug to be approved it must undergo the very same rigorous tests as brand name medications to ensure its quality and effectiveness.

All generic drugs must in fact have exactly the same active ingredient, strength and dosage form (i.e., patch, pill, liquid, etc.) as its brand name equivalent. The only differences with generic medications are the inactive ingredients such as binding materials, preservatives, dyes and flavouring agents – all of which have no bearing whatsoever on the therapeutic action of the drug.

And generic drugs must undergo a series of tests to prove that they are “bioequivalent” (meaning they deliver the same amount of the active ingredient to the patient’s bloodstream) to the corresponding brand name medication. Only after completing this process can a generic drug be approved for market.

Understanding the cost variance

So if generic medicines are just as effective as their brand name counterparts, why such a substantial difference in price? If we were to ask the pharmaceutical companies this question, they would undoubtedly put it down to their sky-high research and development costs.

With the average drug costing around $2.6bn and taking 10-15 years of work to bring to market, this seems to be a reasonable argument. Particularly as, due to the way the patent process works, generic drug manufacturers do not have to fund anywhere near this level of development.

Any generic manufacturer wanting to make the same drug (once the patent has expired) simply has to file an “abbreviated new drug application”, which essentially lets it produce the drug without undergoing costly clinical trials (as the original manufacturer has already done these). Naturally, without the astronomical R&D costs of the larger manufacturers, generic drug companies can afford to sell their medications at a much lower price.

However, while it is entirely fair that drug companies investing millions in developing new medications should be given the opportunity to earn back their investment, large pharmaceutical companies often add a much higher cost to the mix which they then need to recoup – marketing. And that is in fact what goes a long way in explaining why brand name drug prices stay high long after patents have expired.

How you can combat the costs of brand name drugs

There is no need to spend more on branded medications when the generic options are on the table. However, with many doctors being incentivised to prescribe more expensive medications – and for a number of other reasons that may seem out of your control – it can certainly prove quite difficult to feel as though you have much of a say in the matter.

But there in fact are a number of rather basic things that you can do at the organisational level to influence the process. Many companies simply implement healthcare policies whereby employees can only get prescribed medications from white-listed healthcare facilities and pharmacies who more often than not prescribe generic drugs. You can also set up “preferred drug lists” with your chosen healthcare provider to ensure generic drugs are prescribed wherever possible instead of their branded equivalents.

And in the United Arab Emirates we are actually getting a good deal of support from “the system” itself via the government-initiated scheme known as Pharmacy Benefit Management, which was introduced to Dubai and Abu Dhabi several years ago and is getting stronger and stronger each year.

Among other things, PBM encourages the prescription of generic medications over branded drugs when possible, thus affording employers more control over the pharmaceutical side of those ever-increasing healthcare premiums. PBM also offers a great level of control over spending by requiring pharmacies and healthcare providers to gain immediate payment approval from insurance companies for any medicines dispensed – rather than dispensing first and sending the bill through later.

Building closer ties

Fair to say that you likely have a lot more control over the costs associated with branded drugs than you may think. But the first steps have to be taken, and it starts with you looking more closely at your internal policies, and then beyond that at the nature of your relationships with your healthcare providers.

On the latter, yes, you need to build stronger, more communicative, and more process-oriented relationships with those providers. But in the bigger picture of controlling not just drug costs but overall healthcare costs, I cannot stress enough the importance of corporations moving in this general direction.

A closer connection to the healthcare facilities taking care of “your people” is an essential for those companies looking to reverse the trend of rising healthcare costs while ensuring quality care for their teams.

Mark Adams is the founder and CEO of Anglo Arabian Healthcare