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 patentprotection, 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.
