Summary
Generic drugs (generics) are now an established part of pharmaceutical markets and healthcare policies around the world. According to IMS Health data, they already account for 63% of all prescriptions dispensed in the US, the world's largest single pharmaceutical market.
The European Generic Medicines Association, the EGA, has predicted that, by the end of the decade, generics could account for 75% by volume of all pharmaceuticals sold in an expanded European Union (EU), with a total market value of €21 billion.
This forecast takes into account both new Member States such as Poland and the Czech Republic that have a strong heritage of generic production from previously nationalised pharmaceutical industries, as well as Western European countries, such as France, Spain or Portugal, in which ballooning healthcare costs have finally persuaded governments to take more aggressive action to encourage the use of generics.
Seen in value terms - and generics remain very much about lower prices - the advances are less dramatic. In the fiercely competitive US market, for example, IMS Health estimated generic penetration by value to be around 11% in 2005. In the UK, the country with the highest value share that year - about 24%, excluding discounts - branded and unbranded generics made up 64% of the overall market by volume.
There is clearly plenty of room for further expansion of the generics sector, albeit in an environment where low-cost generics manufacturers from countries such as China and Brazil are remorselessly dragging down prices and some important markets, such as Japan, are still lagging significantly in their efforts to stimulate sales of generics.
IMS Health is forecasting generics sales growth of 13-14% worldwide in 2007, compared with 5-6% for the pharmaceutical market as a whole. Such growth would increase the value of the global generics market to $60-65 billion.
Two key factors are particularly fuelling this growth: European governments' efforts to slow the rise of healthcare costs and the string of patent expiries on key pharmaceutical brands in the US and other major markets.
Prescription drugs with aggregate sales of $51 billion faced patent expiry in the five years to 2006, IMS Health notes; the figure for the period between 1996 and 2000 is only $17 billion.
Last year, products with combined sales totalling more than $18 billion lost their patent protection in seven key markets. The US market alone accounted for more than $14 billion of that total, according to IMS. This trend has continued in 2007, with more than $16 billion worth of marketed products expected to come up for grabs to generics manufacturers.
Releasing its top-line data for global pharmaceutical sales in 2005, IMS Health reported that sales of generics in the eight leading markets (the US, Canada, France, Germany, Italy, Spain, the UK and Japan) exceeded $55 billion.
Generics growth in the top seven markets (excluding Japan) was 13%, compared with 5% for original brands and 6% for pharmaceuticals overall.
The US market saw generic sales increase by 15%.
IMS is expecting double-digit sales growth in the generics sector for at least the next five years. That would make generics the largest segment of the pharmaceutical market in volume terms by the end of the decade. The forecast compound annual growth rate for the total pharmaceutical market over the same period is 5-8%.
This growth will come, however, from an industry in the throes of rapid transformation. The last few years have seen enormous upheavals in the operating environment for generic drug companies around the world.
These have included:
new and more stringent patent regimes in countries that have grown into powerhouses of generic development and supply, coupled with pressure through international trade channels for further consolidation of intellectual property rights (IPRs);
legal and regulatory advances and reversals for the US generics industry, in a climate of brutal price competition, as well as multiple challenges to vulnerable brands and short-circuiting of market exclusivity by 'authorised' generics;
a hard-fought review of pharmaceutical legislation in the EU that has both eased and stiffened conditions for generics manufacturers in Europe;
a complex and contentious debate over approval pathways for generic versions of biotechnology products, that has produced a viable regulatory framework in the EU and a virtual stalemate in the US; and
consolidation and diversification in the generics industry as pricing pressures and intensifying competition from low-cost markets take their toll.
These trends present both opportunities and challenges. Opportunities take come from diversification and vertical integration into ingredient manufacture, over-the-counter (OTC) products, more sophisticated branded generics, niche drugs, biosimilars or even research-based proprietary medicines - and offer relief from an undifferentiated market for commodity generics in which prices are driven lower and lower. Consolidation and partnerships open the door to economies of scale and leverage of expertise in non-infringing processes, marketing strategies, value-added formulations and biotechnology.
On the other hand, the challenges faced by generics players are numerous:
how to retain price advantages and profit margins for biosimilars, whose development and approval requirements align them more with 'me-toos' than traditional generics;
how to ensure that new incentives, such as the 'Bolar' provisions and data exclusivity trade-off in the EU's pharmaceutical review, are implemented to the industry's best advantage; and
how to fend off the growing influx of low-cost generics from burgeoning markets such as India, China and Brazil.
This report traces these and other key legal, regulatory and business developments of recent years and offers some pointers to the generics industry of the future.
It begins by discussing the political, economic and ethical debate at the hub of the generics market: how to ensure access to needed medicines while balancing the competing interests of research-based and generics manufacturers.
It ends by looking at an environment in which the fundamentals for robust generics growth are in place, but one in which the generics industry faces the prospect of increasing polarisation - both drawing closer to, and posing a more urgent threat to the research-based manufacturers that are its main adversary, its lifeblood and, perhaps increasingly, its proprietor.
In the future, we could see, rather than a generics industry, a number of parallel or interlocking industries under the broad umbrella of generics. It is clear, for example, that the business model for the manufacture of biosimilars will be quite radically different from the one that has supported a thriving commodity generics sector.
Against such a background, it seems likely that the generics industry of the future will be less homogeneous, less stable and more flexible, offering a range of options tailored to customer needs in the pharmaceutical sector.
Whatever form they take, though, generics will remain essential to the healthcare equation and a defining feature of the pharmaceutical industry worldwide.
|
