Pharmacy Benefits Glossary
A guide to general pharmacy benefits terminology.
- What is a Single-Source Prescription Drug?
- What Are Some Key Characteristics of a Single-Source Prescription Drug?
- Patent Protection
- Regulatory Exclusivity
- Innovation and Brand Recognition
- Economic Impact
- Manufacturing and Distribution
- Clinical Importance
- What Happens Once the Patent for a Single-Source Prescription Drug Expires?
- What Are Some Examples of a Single-Source Prescription Drug?
- What Are Some Implications to the Healthcare Industry?
- What Is a Single-Source Prescription Drug?
- How Do Patents Impact the Price and Availability of Single-Source Prescription Drugs?
- Why Are There Premiums on Single-Source Prescription Drugs?
- Generic Drugs vs. Single-Source Generic Drugs
- What Is the FDA’s Process for Drug Manufacturing and Approval?
- How Do Brand-Name and Generic Drugs Impact Pharmacy Benefits Contracts?
- What Are Single-Source Co-Licensed Drugs?
- What Are Multi-Source Drugs?
- How Different Are Production Costs, Rebates, and List Prices Between Single-Source and Multi-Source Drugs?
- What Is the IRA’s Impact on Single-Source Drugs?
What is a Single-Source Prescription Drug?
A single-source prescription drug is a pharmaceutical product that is available for purchase from only one manufacturer or supplier. Unlike generic drugs, which may have multiple manufacturers producing the same formulation, a single-source drug is protected by patent rights, exclusive marketing rights, or other regulatory protections that restrict its production and sale to a single entity. This exclusivity can result from several factors, including intellectual property protections, regulatory approvals, or unique manufacturing processes.
What Are Some Key Characteristics of a Single-Source Prescription Drug?
Patent Protection
Single-source drugs are often under patent protection, which grants the manufacturer exclusive rights to produce and sell the drug for a specific period, typically 20 years from the filing date of the patent. During this period, no other company can legally produce a generic version of the drug, allowing the patent holder to recoup research and development costs and potentially earn significant profits.
Manufacturers make significant investments in marketing and promotional activities to maintain brand dominance and maximize the return on investment. This can include efforts to extend patent life through additional patents on new uses, formulations, or methods of delivery.
Regulatory Exclusivity
Besides patents, single-source drugs may also benefit from regulatory exclusivity, which can provide additional market protection even after the patent expires. For instance, new drugs may receive exclusive marketing rights from regulatory agencies like the U.S. Food and Drug Administration (FDA) for a specified time, preventing generic competition and maintaining single-source status.
Innovation and Brand Recognition
These drugs are usually the result of significant research and innovation, often leading to new treatments or breakthroughs in medicine. The original manufacturer typically markets the drug under a brand name, which can become synonymous with the treatment itself, and contribute to brand loyalty among healthcare providers and patients.
Economic Impact
The exclusivity of single-source drugs often leads to higher prices compared to generics, as there is no competition to drive costs down. This can make them more expensive for patients and healthcare systems, potentially leading to higher insurance premiums and out-of-pocket expenses.
Manufacturing and Distribution
The production of single-source drugs is typically centralized, with strict control over the manufacturing process to ensure consistency and quality. The distribution of these drugs is often more controlled compared to generics, sometimes leading to supply limitations and accessibility issues, especially in regions where the sole manufacturer has less presence.
Clinical Importance
Single-source drugs are often crucial for treating specific medical conditions for which no alternative therapies exist. Their availability can be vital for patient care, especially in cases where they represent the only effective treatment option.
What Happens Once the Patent for a Single-Source Prescription Drug Expires?
Once the patent or exclusivity period expires, other manufacturers may produce generic versions of the drug, which typically leads to a reduction in price and increased accessibility. The transition from a single-source drug to a multi-source generic can significantly impact healthcare costs and patient access to essential medications.
What Are Some Examples of a Single-Source Prescription Drug?
Single-source prescription drugs often represent cutting-edge therapies that address unmet medical needs. Drugs like Humira (adalimumab), which is used to treat autoimmune diseases, and certain cancer treatments are notable examples of single-source drugs. Humira recently lost patent protection; however, it dominated the industry for more than two decades as a single-source prescription drug.
What Are Some Implications to the Healthcare Industry?
The existence of single-source drugs underscores the balance between encouraging pharmaceutical innovation and ensuring that life-saving medications are accessible and affordable. Policies and regulations are continually evolving to address these challenges, aiming to foster both innovation in drug development and broader access to essential medicines.
What Is a Single-Source Prescription Drug?
A single-source drug is an FDA-approved drug that can only be sold to consumers by the company that holds the patent. The drug is approved by the FDA under an original new drug application (NDA), granting the developer the exclusivity for manufacturing, distributing, and selling.
A single-source prescription drug is only available to consumers with a doctor’s prescription and is not simply an over-the-counter (OTC) drug. Sometimes, a single-source drug is called a single-source brand drug, which is just another way of saying that only the company holding the patent can place its label on the drug.
How Do Patents Impact the Price and Availability of Single-Source Prescription Drugs?
A drug patent typically lasts 20 years, beginning when the patent office recognizes it as a unique creation. Since only the developer can sell a single-source prescription drug, it gives this patent owner a market advantage while the patent is active. However, bringing a new drug to market can take many years of trials. Often, when a developer can finally sell a new drug, half of the patent life has already passed.
Development is expensive, so manufacturers face much pressure to earn enough to cover years of investment while they have a market advantage. The introduction of competitors drives the price down. For this reason, patents almost universally mean the labeled single-source prescription drug will be expensive until the patent expires.
Why Are There Premiums on Single-Source Prescription Drugs?
Drug manufacturers charge a premium to recoup development costs while they have patent-protected exclusivity. Additionally, there are no guarantees how the market will receive a drug.
Pharmaceutical companies must spend considerable money on marketing while still waiting months or years before a new drug becomes profitable. For example, in 2022, pharmaceutical companies spent around $7.6 billion on direct-to-consumer (DTC) advertising.
While a manufacturer’s patent remains active, there are no generic options, so the price remains high until the patent expires.
Generic Drugs vs. Single-Source Generic Drugs
Other pharmaceutical manufacturers can start producing generic versions of drugs once the patent ends. The generic versions must be identical to the original drug.
There is an exception to this, however. The FDA may grant a single company exclusive rights to manufacture, distribute, market, and sell the generic version of a drug, in which case it’s considered a single-source generic.
This classification generally lasts from six months to one year. The only distinction between this generic and the original patented drug is the lack of branded labeling.
What Is the FDA’s Process for Drug Manufacturing and Approval?
The FDA must approve every prescribed drug sold in the US. Approval only comes after years of research, testing, and clinical trials. The development and approval process generally requires the following phases:
- Discovery and development for initial research
- Preclinical research with laboratory and animal testing
- Clinical trials to test safety and effectiveness on humans
- FDA review
- FDA post-market monitoring for safety
How Do Brand-Name and Generic Drugs Impact Pharmacy Benefits Contracts?
Pharmacy benefit managers (PBMs) must often determine whether to consider a drug branded or generic when classifying it for insurance plan reconciliations.
An example is single-source generic drugs, where the patent has expired, but there’s still a brand given exclusivity to sell the drug. Even with a generic classification, it’s still only sold by a single brand.
PBMs attempt to negotiate the best patient prices, and much of the drug volume is generic. A drug classification can profoundly affect how a PBM locks in pricing and how much of a cost savings is possible.
Branded drugs might have a much smaller margin for discounts that PBMs can pass on to plan members, while generics could provide more significant discount margins.
What Are Single-Source Co-Licensed Drugs?
Manufacturers produce or distribute single-source co-licensed drugs under an FDA-approved original new drug application. The original developer licenses these drugs to multiple manufacturers or distributors.
Single-source co-licensed drugs don’t have a generic version and can’t be manufactured or sold by unlicensed pharmaceutical companies.
What Are Multi-Source Drugs?
Multi-source drugs are medications available as the original brand and as generic equivalents from other manufacturers. These drugs are generally co-licensed brands.
Various pharmaceutical companies manufacture multi-source drugs without an available generic version. These are drugs covered for outpatient use with more than one equivalent version, each approved by the FDA.
How Different Are Production Costs, Rebates, and List Prices Between Single-Source and Multi-Source Drugs?
While single-source drugs are more expensive for patients, they also involve more negotiation over rebates and other discounts. Some suggest that rebates partly influence manufacturers to inflate their prices.
Multi-source drugs are typically priced lower because of increased competition in the space, and the original single-source developer carried most of the costs of the drug’s initial development and testing.
What Is the IRA’s Impact on Single-Source Drugs?
Under the Inflation Reduction Act (IRA), pharmaceutical manufacturers with drugs sold through Medicare Part D must pay rebates to the government if the price exceeds a year’s benchmarked rates. Single-source drugs under Medicare Advantage and Part D plans are entered into a price negotiation program to control prices.
