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Some Analysts See Prices Rising, Others Don’t

October 9, 1989

WASHINGTON (AP) _ Some generic drug makers and industry observers say an anticipated shakeout in the industry and the prospect of more rigorous safety testing will force up prices for these consumer bargains.

But others say the industry will remain competitive enough to withstand the financial pressures without price increases.

Generic drugs, which account for about a third of all prescriptions nationwide, now offer consumers savings averaging 50 percent to 70 percent over their brand-name counterparts - and in some cases the savings are many times greater.

Disclosures that some manufacturers cheated on product testing has raised the expectation that the Food and Drug Administration will require more rigorous testing and tighten and control over approval of generic drugs.

″The prices for generics will show a gradual increase ... but still will be substantially below brand-name drugs,″ said John H. Klein, president of Zenith Laboratories in Northvale, N.J.

Klein, who with an investor group took the company out of bankruptcy last year and anticipates generic-drug sales of $36 million to $40 million this year, also predicts an end to cut-throat pricing in the generic industry as companies realize that setting prices below costs to gain market share is unprofitable.

The FDA has no formal proposal for tougher regulations, but agency officials have been discussing the need for more staff, the possibility of imposing user fees on the generic industry for new drug application filings and more rigorous safety testing.

″All of those things will affect the cost of the generic drug,″ said Henry F. Blissenbach, director of pharmacy programs for United HealthCare Corp., a Minneapolis-based manager of health maintenance organizations.

But an official at Rugby Laboratories in Rockville Center, N.Y., a privately-held generic drug maker said by analysts to be the largest in the country with about $500 million in annual sales, disagrees.

Martin Zeiger, executive vice president and general counsel of Rugby, said the additional costs would not be significant enough to force prices higher.

″It’s a very competitive industry,″ he said. ″We don’t see the prices increasing at all.″

Analysts anticipate that some generic manufacturers will not make it through the scandal. Hemant K. Shah, a pharmaceutical analyst at HKS & Co., expects that more than half of the top 20 generic drug makers - which account for 90 percent of the generic business - will disappear within five years.

″But still the prices of generics probably are not going to rise because six or 10 companies are still enough for some form of pricing pressure,″ he said.

Ronald Nordmann, a pharmaceutical analyst with PaineWebber Inc., said it is too early to tell whether generic prices will go up. But he predicts the power of the industry will shift to the brand-name companies, which make a large share of generic products.

Most observers agree that the problems being sorted out by the FDA and within the industry will delay the processing of applications for new generic drugs, at least for the short term.

Drug expenses for some consumers have already gone up. With some generic products having been taken off the market as a result of the investigation, some drugs are left without a lower-cost alternative.

″The costs to pharmacists are going up for selected products, but not overall,″ said Steve Grote, vice president of purchasing for the American Association of Retired Persons Pharmacy Service. Prices have not risen for AARP pharmacy customers, though, because prices are set for a year, he added.

The biggest impact of generic drug recalls may be seen by patients taking the high-blood-pressure drug Dyazide or its generic version.

One of the drug’s two clones was removed from the market earlier this year when its maker, Vitarine Pharmaceutical Inc., admitted cheating on safety tests to win FDA approval. Now, the FDA is trying to remove the other generic version from the market, saying its maker, Bolar Pharmaceutical Co. Inc., misrepresented test data to the agency.

Kaiser Permanente, the nation’s largest health maintenance organization, has already stopped dispensing the Bolar product, which is about half the price of Dyazide. However, the impact has been ″insignificant on our total program costs,″ said Dale Kramer, who handles pharmacy purchasing for Kaiser.

For others not protected by volume purchasing, though, the removal of Bolar’s product from the market would mean higher prices for some consumers, at least until another generic version could win FDA approval.

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