Why Generic Drug Prices Are Dropping

Drug distributors and manufacturers said they expect generic drug prices to drop this year, thanks in part to pharmacy chains’ efforts.

The increased buying power of Walgreens via its partnership with AmerisourceBergen and Express Scripts; CVS Health and Cardinal’s partnership; and Walmart’s recent partnership with McKesson Corp., are pushing generic prices lower.

In fact, in its fourth-quarter revenue report, Cardinal Health said its pharmaceutical segment profits dropped 7% to $505 million, “driven by generic pharmaceutical pricing and the company’s ongoing investment in its Pharmaceutical IT platform.”

AmerisourceBergen and Teva Pharmaceutical, a large generic drug manufacturer, also said they expect generic price drops of as much as 9% through the end of the year, according to Reuters.

Teva, which said its U.S. generics business suffered from accelerated price erosion and decreased volume, lowered its earnings guidance for 2017, according to MarketWatch. Moody’s, a bond credit rating company, downgraded Teva’s rating to one level above junk.

Related article: Why Specialty Drug Prices Will Continue to Soar

While the news bodes well for patients, Teva’s stock dropped 24% on the news last Thursday and has since fallen around 40% total, while AmerisourceBergen’s and Cardinal’s shares fell 10%, with Cardinal recouping most of its stock price and AmerisourceBergen remaining consistent.

“There’s no question those guys are getting much better pricing and really squeezing the manufacturers on margins," said Gabelli & Co Portfolio Manager Jeff Jonas in the Reuters article. "It's going to be a tough space for some time ... they are just going to keep playing the manufacturers off against each other."

While CVS Health did not return emails for comment and Walgreens declined to comment, a Walgreens representative directed Drug Topics to its 2013 announcement that it would enter into a long-term partnership with AmerisourceBergen along with Alliance Boots.

“This relationship will enable Walgreens, Alliance Boots, and AmerisourceBergen to benefit from greater scale and global opportunities and work together on programs to improve service levels and efficiencies, while reducing costs and increasing patient access to pharmaceuticals,” the statement said. “Together these three companies will help address global health care challenges by making it easier for manufacturers to bring products to market; increasing accessibility to the benefits of global sourcing and best practices for community pharmacies; and providing patients with better access to health care.”