WOONSOCKET, R.I. -- The increasing penetration of generic drugs in the pharmaceutical market has tremendous implications for CVS, chairman, president and chief executive officer Tom Ryan said this year.
From 1995 to 1999 about $11 billion worth of drugs came off patent, he noted. From 2000 to 2004 the figure was about $35 billion. From 2005 to 2009 the number is projected to be $60 billion.
The big question is trying to figure out what that means for margins, according to Ryan.
"We make more in penny profit from generics than we do from branded items, even though drug prices are probably $70 to $75 less," he said. "Obviously the margins are better and we make more penny profit."
To give a quarter-by-quarter, blow-by-blow projection of when generics are going to come off patent and when they will hit CVS' profit and loss statement is next to impossible, Ryan added. He did say that for internal purposes, the company is estimating that $12 to $16 billion worth of drugs coming off patent will affect it in 2006.
While use of generics increases profitability, it restricts top-line growth. For every 1% shift to generics CVS takes about a $300 million hit in pharmacy sales, according to Ryan. That is one explanation for pharmacy growth slipping to the 7%-to-10% range from more than 15%, he said.
"Generics," he added, "are good for the industry: They're good for payers, they're good for consumers and they're good for the provider."
Any pressure to keep prescribing branded medications may be offset by the federal government as it strives to cut costs, he noted. Medicaid and Medicare currently do not provide a lot of incentives for beneficiaries to take generics. There is no co-pay difference for people taking generics versus brands, and there is no formulary, he pointed out.
"I think we'll see the federal government driving generics going forward, which should help us."
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