Expect higher prices for generic drugs, says drug wholesaler

Legislation to control rising drug prices was introduced in Congress last week, and federal prosecutors are investigating drug price increases.

But the chief financial officer of a leading drug wholesaler said Wednesday that generic price inflation would continue, even as the rate of increase has eased in recent months.

Michael C. Kaufmann, CFO of Cardinal Health, told financial analysts in New York that corporate takeovers in the generic industry had reduced the number of manufacturers, which can mean price increases, because fewer firms are competing.

Wholesale distributors take a cut of drug prices, so higher prices mean a larger cut. Cardinal has "a large group of folks that focus every day" on generic prices to maximize margins, Kaufmann said at the Morgan Stanley Global Healthcare Conference.

"All those environmental factors that we believe have been a part of generating price increases over the last several years are still out there," Kaufmann said. "The only one that's new that I would say is a little bit on the opposite side is the hearings in Washington.

"If I'm a CEO of a generic company and I'm being called to Washington to talk about my price increases, that might give me a little bit of pause around taking price increases," he said. "But again, if you're a CEO and you have to deliver your numbers to your shareholders . . . it's a marketplace where you're still going to see generic inflation being a component of what's going on in our margins."

Sen. Bernie Sanders of Vermont, who is seeking the Democratic nomination for president, and Rep. Elijah Cummings (D., Md.) held hearings last fall on generic price increases. Then last week, they introduced a bill to address what Sanders called "skyrocketing" drug price hikes. (The bill has gotten no Republican cosponsors so far.) Sanders referred to a study by the Centers for Medicare and Medicaid Services that found overall price increases of 12 percent last year.

"Americans should not have to live in fear that they will go bankrupt if they get sick," Sanders said in a statement. "People should not have to go without the medication they need just because their elected officials aren't willing to challenge the drug and health-care industry lobby. The pharmaceutical industry spent nearly $230 million on lobbying last year, some $65 million more than any other industry, and employed over 1,400 registered lobbyists."

In letters sent last fall to 14 companies - 12 with headquarters or generic operations in Pennsylvania or New Jersey - Sanders and Cummings asked the leaders to explain price increases on specific drugs, some of which rose more than tenfold.

A federal grand jury in Philadelphia is looking into the matter. The Philadelphia-based generic drugmaker Lannett said last fall that it was subpoenaed. Allergan, formerly called Actavis, has also received a subpoena.

Valley Forge-based AmerisourceBergen, one of the other big three wholesalers, saw generic price inflation in its third and fourth fiscal quarters, but "we've seen that trend moderate," CEO Steve Collis said.

"You just don't hear much talk about $4 generics anymore, which we think is a good thing because we have very high quality and predictability requirements from our suppliers, and that's one of the key areas that our customers look to us for," Collis said. "They don't want ever to be out of product. And our fulfill rates on generics are going up all the time."