OBJECTIVES: After a drug’s exclusivity period, generic competition can enter the market and substantially reduce the drug’s price. Despite this, nearly all cost-effectiveness analyses (CEAs) assume a constant branded price over the entire model time horizon. A commonly cited rationale for the omission of future pricing dynamics from CEAs is the uncertainty around what post-loss of exclusivity price to model in the absence of scientifically rigorous assumptions. The objective of this research was to synthesize expert opinions, published research, and real-world financial statements to recommend a practice for estimating a drug’s price after loss of exclusivity to allow for genericization to be incorporated within CEA.

METHODS: Six stakeholder interviews (2 with biotechnology investors and 4 with commercial executives of small molecule generic or biosimilar companies) were conducted to discover how generic drugs are priced and to identify the long-term stable price of such drugs. A narrative literature review was conducted to review peer-reviewed and grey literature on the relationship between branded and generic drug pricing. Finally, the financial statements of the top 10 generic manufacturers by Medicare Part D spending were reviewed.

RESULTS: Stakeholders suggested that cost of goods sold (COGS) are foundational to setting prices for generic small molecule drugs. The mark-up over COGS may vary based on manufacturing complexity, orphan drug classification, and regulatory obstacles; however, a reasonable long-term stable price for a generic drug is two times the COGS. The literature review summarized empirical evidence of the steep and variable discounts generic drugs have from the branded price, and the review of generic manufacturer financial statements suggested a 50% profit margin over COGS.

CONCLUSIONS: Estimating a generic drug’s price after its loss of exclusivity as two times its COGS is an assumption supported by experts, literature, and real-world generic pricing practices.