Latest news from Datamonitor
pharmafile | May 21, 2008 | News story | Sales and Marketing | generics
Cash-strapped governments and patent expiries fuel generics growth
The increase in cost-limiting measures used by governments and a constant stream of patent expiries mean that the global generics market continues to grow. Generics sales growth is slowing in mature markets like the US, where generics use is high. However, as governments look to curb healthcare spending, the introduction of pro-generic legislation will see less mature markets, like Spain, change.
In the US alone, drugs collectively worth more than $62 billion in 2006 sales are due to go off patent during 2008-12, with the likes of Pfizer's blockbuster Lipitor at the sharp end of generic erosion. However, with the US market increasingly difficult to penetrate, and generics sales in both the UK and Germany slowing down, generics manufacturers are looking elsewhere to make an impact. Markets in countries such as France, Italy, Spain and Japan that have been slow to make use of generics could be prime targets. However, a new Datamonitor report has found that there are potential pitfalls in each of the seven major markets.
The US is by far the world's largest generic market, and the combination of the country's free pricing rules and pro-generic environment make it an extremely attractive prospect for foreign investors, despite the intensity of the competition. During 2005-07, two thirds of the major international acquisitions involving a US pharmaceutical company involved a foreign company acquiring a US firm. However, the level of competition in the US is increasingly putting a brake on growth, driving consolidation and global expansion. Therefore, the relatively less penetrated European markets provide a more attractive prospect for domestic players.
Moreover, Wal-Mart's foray into the generics market is likely to be cause for concern for the industry. Analysts fear that, with US employers footing a large part of the healthcare bill, a natural extension of Wal-Mart's current strategy would be for the company to enter directly into specific agreements with corporate healthcare providers.
New legislation is also likely to impact upon industry profits. As part of the Deficit Reduction Act (DRA) of 2005, manufacturers are now obliged to include sales of authorized generics in the calculation of average manufacturer price (AMP) and best price (BP).
New reforms are changing the way that generics companies sell drugs in Germany, with exclusive contracts likely to prove more lucrative than marketing directly to healthcare providers. Germany is the biggest generics market in Europe, and the second largest globally. Spiraling healthcare costs have driven the implementation of measures to increase generic use, with the result that uptake levels in Germany are among the highest in Europe. The German healthcare system has been in a state of flux for several years, with new reforms introduced on an almost annual basis. The most recent changes have made the country's generics industry more open, following a period of domination by the larger German players.
A government-led push towards increasing generic substitution for certain drug types in the UK, where generic use is already high, provides further room for growth. The UK demonstrates the highest levels of penetration of the five major EU markets, at 26% by value and 64% by volume in 2006. The number of generic prescriptions has increased at a rate of 6% year-on-year from 1995 to 2005.
Nonetheless, a recent report by the National Audit Office suggests that savings from generic drugs could be increased if all Primary Care Trusts used them at the same high level. The government is considering the recommendations; however, Datamonitor believes that a wholesale shift in prescription behavior is unlikely, due to the nature of the drugs in question – chronic use statins among them – which makes patients unlikely to accept a change in drugs taken for many years.
Generic substitution for those drugs that the French government has targeted is high, but a combination of physician reluctance and a lack of awareness on the part of patients mean that, overall, France lags behind Germany and the UK in terms of generic uptake. Analysts note that brand loyalty is a significant factor in the French pharmaceutical market, and may be responsible for the historically low levels of generic uptake in the country. Although generic penetration is low in France, rising healthcare costs are likely to lead to substantial growth opportunities, particularly given that France is already the third largest generic, and second largest pharmaceutical market, in Europe.
The proportion of the Italian healthcare budget that goes on drug spending is the highest in Europe, while the country's generic use is the lowest. Datamonitor believes that, ultimately, this discordance is likely to disappear in the face of increasing pressures on healthcare spending, a fact that several international generic companies that have made forays into the Italian market, including Ranbaxy and Teva, are counting on. Distrust of generic drugs among healthcare providers and patients is a major obstacle to industry growth in Italy. The withdrawal of 11 undisclosed generic drugs in September 2006 due to concerns regarding the veracity of their bioequivalence will make a significant dent in efforts to promote generic use.
Distrust of generic drugs is also an issue in Spain. However, Datamonitor believes that price differentials between branded and generic drugs in Spain are almost the lowest in Europe and may have contributed to the relatively poor uptake of generics in the country to date. However, as in other countries, rising healthcare expenditure is likely to increase generic use.
Generic penetration in Japan is also very low, due, in part, to the mistrust with which generic drugs have traditionally been viewed. This stems from poor awareness regarding generic drugs, compounded by a lack of incentive for healthcare providers and patients alike. However, with the most rapidly aging population in the world, and rising healthcare costs, this is set to change. Recent government legislation indicates a clear push towards generic usage, with generic substitution in Japan now mandatory. Physicians are now required to state explicitly on the prescription if a branded drug is to be dispensed.
Additionally, generics may now be listed for reimbursement twice annually rather than once, and analysts believe that, as a result, Japan provides the prospect of immense growth potential for those companies that are correctly positioned – a concept driving the current interest in the country's generic industry. Poor awareness, and, crucially, generic supply have been major obstacles hindering generic penetration in Japan, and the industry has taken steps to remedy this. Because Japan is unusual in that a high proportion (43%) of pharmaceutical spending occurs in hospitals, manufacturers are beginning to forge stronger links with wholesalers as a means of increasing generic sales.
Related research:
Generics Series: Key trends and events in the 7 major markets
Commercial Insight: Cardiovascular market overview – Raft of patent expiries threaten blockbusters
Generic Series: Benchmarking Patent Expiries – Key Factors Affecting Brand Erosion at Patent Expiry
Related Content
Leading pharmaceutical companies sued in US for conspiring to drive up generics prices
26 pharmaceutical companies are being sued by most US states for allegedly conspiring to reduce …
Trump signs deal with generics company Phlow Corp to help shift drug manufacturing to the US
The Trump administration will sign a $354 million deal with the generics company Phlow Corp …
How the intended role of generic medicines is being undermined in America
The introduction of a generic medicine should, in theory, incentivise companies to lower the price of …
