The generics world which had started its journey as a patchwork of national marketplaces now rivals the mainstream pharma universe as almost half of all prescriptions today are filled with generic drugs,often termed as “magic bullets” when it comes to cost saving. With cost-containment a focus for all healthcare players, the growth of the generics market is outpacing the branded sector by a considerable margin.
With the global financial crisis ,many nations and in particular the US is seeking to reduce healthcare costs through promotion of generics and creating better approval pathways for biogenerics.
According to IMS Health estimates , the generic drug industry is growing at 7.8 per cent, which is a faster pace than the worldwide market for pharmaceuticals. It estimates $42 billion in global generic drug sales in 2011, representing growth from an expected $28 billion in global sales in 2009 and $17 billion in 2008.At the same time according to data from the Generic Pharmaceutical Association, patients saved an estimated $121 billion in 2008 thanks to generics.
The generic market which came of age during the 1990s have consolidated its position during the initial years of the new millennium. The market share of the generic drug industry is poised to capture even larger share of the drugs market worldwide. Estimates reveal that the brand name drug sales of $70 billion will face increasing competition from generics through 2012.
Generics industry's double digit growth rates is expected to continue through 2011 and will make up 20 per cent of the total pharmaceuticals market .
Although the worldwide economic downturn which began to take hold in 2008 led to slower growth for pharmaceuticals overall, the negative effect was less marked in the generic sector, and in the medium to long term, it is expected that generic markets will continue to show positive growth, and at a faster rate than mainstream pharma. The global generics market will sustain a CAGR of 14 per cent during the period 2008-12 according to estimats by Cygnus.
According to a technical market research report from BCC Research , the global market for generic drugs was worth $84 billion in 2009, a figure that is expected to reach $129.3 billion in 2014, for a compound annual growth rate (CAGR) of nine per cent over the five -year forecast period.
A major growth driver for the generics sector is that several blockbuster pharmaceutical brands are coming off-patent and are therefore open to generic competition. And the international landscape is changing for generics as for all pharmaceuticals. China, India, Eastern European countries and Brazil are among rising centres of generic activity.
With exciting new developments to be driven by the wave of blockbuster drugs approaching patent expiry, the generic market is expected to sustain its strong current growth. While patent expiries of blockbuster drugs and increasing healthcare expenditure will continue to drive the growth of the industry, the major generic firms will become more dominant with further acquisitions in future.
The generic pharmaceuticals sector has been expanding strongly in recent years as the need for cheaper medicines worldwide has increased. Generic drugs are less expensive because generic manufacturers don't have the investment costs of the developer of a new drug. New drugs are developed under patent protection. The patent protects the investment - including research, development, marketing, and promotion - by giving the company the sole right to sell the drug while it is in effect. As patents near expiration, manufacturers can apply to the FDA to sell generic versions. Because those manufacturers don't have the same development costs, they can sell their product at substantial discounts. Also, once generic drugs are approved, there is greater competition, which keeps the price down.
Generic manufacturers do not incur the cost of drug discovery, and instead are able to reverse-engineer known drug compounds to allow them to manufacture bioequivalent versions. Generic manufacturers also do not bear the burden of proving the safety and efficacy of the drugs through clinical trials, since these trials have already been conducted by the brand name company. In most countries, generic manufacturers must only prove that their preparation is bioequivalent to the existing drug in order to gain regulatory approval. It has been estimated that the average cost to brand-name drug companies of discovering and testing a new innovative drug (with a new chemical entity) may be as much as $800 million.
Generic drug companies may also receive the benefit of the previous marketing efforts of the brand-name drug company, including media advertising, presentations by drug representatives, and distribution of free samples. Many of the drugs introduced by generic manufacturers have already been on the market for a decade or more, and may already be well-known to patients and providers although often under their branded name.
The next five years will see more leading drugs going off patent, thus increasing opportunities for generics producers. Regulations favouring generic products give cause for optimism in the generics sector, while still leaving scope for novel branded drugs. That growth has been partly driven by cost-containment in several national healthcare sectors, with governments seeking to promote the use of generic products over higher-priced originator products.
According to some estimates , the current global generics market in developed countries is at $59 billion. Of the latter figure, the five major European national markets account for 23 per cent , the US for 42 per cent , and Japan for six per cent
Generic penetration varies widely from country to country. In Europe, for example, generics account for almost 18 per cent of the German pharmaceutical market but only 11 per cent of the pharma market in France. The European average share is 15 per cent. This compares with 10 per cent of the US pharmaceutical market, but only six per cent of the market in Japan.
The last few years has seen several major shifts in generics company strategies. From 2006 to 2008 a period of high M&A activity was seen as many companies sought to expand geographically and create the scale required to compete with large pharmaceutical companies. Since the global financial crisis the level of deals has declined owing to restricted debt markets and the need to reduce company debt.
Though the generics market is likely to grow leaps and bounds in the coming years, the operating environment for generics is becoming increasingly competitive. Spearheadedd by leading pharma companies and specialist pharma organisations, even major players are moving into the generic drugs market. The fierce price competition may result in reducing profit margins for participating companies.