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OTC ANALGESTIC PRICES CLOSING GAP ON PREMIUM PRICED IBUPROFEN PRODUCTS, PRODUCER PRICE INDEX FOR FIRST QUARTER SHOWS; OTC INDEX UP 2.7% DURING PERIOD

Executive Summary

OTC internal analgesic prices, boosted last year by the introduction of premium priced OTC ibuprofen, continued to show an annualized double digit growth at the producer level during the first quarter of 1985. According to data from the Bureau of Labor Statistics' Producer Price Index, OTC internal analgesics were up 3.3% during the first quarter of 1985 and are up over 10% from March 1984. At least one major OTC analgesic mfr., J&J, has reportedly taken advantage of the price gap between the premium prices for ibuprofen products over the proprietary brands to raise the price of its Tylenol line by approximately 10% in 1984. Price increases in the internal analgesic area and among liquid antacids had the effect of pumping up the Producer Price Index for OTC drugs 2.7% in the first quarter. If prices continue to rise at that pace, the 1985 increase will be above 10%. With nearly all the price growth coming in the first two months of the year, liquid antacids (up 6.5%) and aspirin/aspirin-salicylate compounds (up 4.2%) were the leading categories in terms of first quarter price increases. The two categories are up 11% and 12.6%, respectively, over the past 12 months. Of the nine specific OTC drug product categories listed on the Producer Price Index Table 4, only antiseptics and antibacterials (up 2.9%) showed any price movement in March. In recent years, price growth for proprietary drugs has consistently lagged behind Rx drug growth, according to Bureau of Labor Statistics' producer price data. While Rx prices grew at roughly 11% each year from 1981 through 1983 and almost 9% in 1984, OTC prices have grown at a compound rate of approximately 7% in each of the last three years and last mirrored Rx prices in 1981 when the OTC drug producer price index climbed 10.6%. First quarter OTC price growth, to 2.7%, in 1985 compares with 1.4% growth in 1983 and 1.8% in 1984. After moderating somewhat in 1984, Rx drug prices at the producer level appear headed back toward annualized double digit growth levels. During the first quarter, the Producer Price Index for drugs jumped 4.3%. Except for 1984, when Rx prices grew only 3.3% in the first three months of the year, first quarter Rx price inflation has been in the 4-5% range in each quarter going back to 1981. The 4.4% first quarter price growth in Rx drugs and the 2.7% increase in OTCs at the producer level contrasts with the overall Producer Price Index for finished goods, which was flat for the first quarter. Unadjusted for seasonal changes, the Producer Price Index for finished consumer goods was down .3% in the first quarter. Due to the prolonged pressure on the overseas operations from both the continued strength of the dollar and from recent price cuts in nationalized markets, such as Japan and the U.K., the drug industry appears to be using its price flexibility in the U.S. to sustain growth. While Rx price growth has recently captured interest in the lay press, including a recent "Heard on the Street" column in the Wall Street Journal, the issue does not yet seem to have attracted a vocal political following. The "Heard on the Street" column quoted a Waxman staffer as saying that his office was not interested in the Rx price trends, but was more concerned with indirect pricing issues such as encouraging the increased availability of generics under the recent patent/ANDA law. Rx price growth in the first quarter was fueled largely by several categories posting significant price gains during the three month period, including sedatives (up 17.4%), hormones (up 13.2%), brochial threapy (up 11.1%), and central nervous system stimulants (up 10.9%). Cardiovascular agents also showed a relatively large first quarter price gain, jumping 8.3% during the period. Specific product categories with the most price growth were vasodilators (up 9.0%). Overall, cardiovasculars have grown in price by 13% at the producer level during the last 12 months. Aggressive pricing for the two major heart drugs, Inderal and Dyazide, both of which are coming off patent, is contributing to the upward movement of this category. At a recent Goldman Sachs' health care seminar, SmithKline Beckman President Henry Wendt noted that Dyazide prices were increased 10% "late last fall" and are up roughly 15% over the last 12 months. Two product categories with markets primarily in the hospital area, broad and medium spectrum antibiotics and anticoagulents, were the only product categories listed by the Bureau of Labor Statistics' to show first quarter price declines. The broad and medium spectrum antibiotics' prices were off .9%, while anticoagulent prices slipped 2.5%, according to the Producer Price Index data. Producer prices for seven drug categories were flat during the quarter. Chart omitted.
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