What is the issue?
- Amid the public fury over the escalating costs of brand-name medications, the prices of generic drugs have been falling.
- This has raised concerns with the profitability of major generic manufacturers.
- It has also led to serious question as to whether it will benefit the end consumer in the long run or not.
What are generic drugs?
- A brand-name drug product is originally discovered and developed by a pharmaceutical company.
- It costs a lot for the innovator to bring a new drug to the market.
- So a patent allows the innovator to sell the branded drug exclusively in order to recoup the money spent during development and to generate a profit.
- Generics are off-patent, less-expensive drugs that are chemically similar to an innovative drug.
- There is a considerable decline in generic drug prices in recent days.
What are the reasons for this trend?
- Generic drugs are mimic versions of brand-name products and their prices are expected to drop over time. When a brand-name drug first loses its patent protection, prices fall slowly.
- Over the next couple of years, as more competitors enter the market, the prices drop even more.
- An imbalance in supply and demand is said to be the root cause of recent changes in the generics drug market.
- In the US, with the Food and Drug Administration clearing out a backlog of generic-drug approvals, more competitors are entering the market.
- Companies are more aggressively undercutting each other’s prices for making them competitive.
- Generics companies are missing out on peak profit potential because not as many brand-name products are losing patent protection.
- Generic companies have gone on acquisition sprees in an effort to head off some of these challenges.
- But major pharmacy chains, drug wholesalers and pharmacy benefit managers (which operate drug plans for insurers) have united into colossal buying groups.
- This consolidation in the wholesalers and the retail pharmacy is also a cause for the deflationary environment.
- There are only three or four purchasers in the market, which are controlling 90-plus percent of the supply.
What could be the impact?
- Consumers - Overall drug spending is still on the rise because of the skyrocketing price of new, brand-name drugs.
- Those who pay cash for generics may not notice a drop in price because many are already cheap.
- Manufacturers - If the trend continues generic drugmakers will continue to feel pressure on profits in the pharmaceutical market, encounter nearly flat revenues and could become unviable
- This could drive the drugmakers to drop out of the market, and the resulting shrinkage in suppliers may lead to vaccine shortage and serious health complications.
- On the other hand, this could lead to a wave of mergers and acquisitions, reducing competition and leading to higher prices, in the long run.
Source: The Hindu
