The generic drug industry players comprise of both small players (neonates) and some which are large players (adults). The generic drug market is no more dominated by standalone or exclusive generic drug players. Even the largest generic drug players like Teva, Mylan and Actavis have franchises or divisions which manufacture branded products which some analysts label as branded generic products. Most of the generic drug players manufacture their drugs in low cost locations to apply their fixed costs for large scale of drugs they manufacture and apply the economies of scale. Most of the generic drug manufacturers sell these globally. In case the products like bio similars and bio generics which require a certain level of expertise to manufacture and fall under a niche segment, the conventional economies of scale may be hold limited validity.

In the last decade, particularly in the year 2012, with Lipitor (Atorvastatin) coming off patent marked the most lucrative year for all generic drug players, big or small. Post 2013, analysts predict a slowdown in the patent expirations both in terms of numbers and rising cost of manufacturing them. Analysts predict a slowdown in generic drug manufacturing in the years post 2014 because the market would be saturated with both neonate and mature manufacturers combined.

The consumption of generic drugs would be the maximum by the majority of all populations worldwide. Keeping in view of this fact, governments of the US and Europe are under pressure to curb their healthcare budgets and constantly emphasizing the usage of cost effective generic drugs for their population in order to cover up for their rising healthcare expenditures. Most of the generic drug medicines supplied to the US and Europe have an Indian origin. Indian pharmaceutical iIndustry is one of the largest suppliers of generic drug medicines and the share of Indian companies in an approximate generic drug market size of US$ 50 billion in the year 2013 is 10.5 percent. Most of this generic drug market share can be attributed mainly to the Sun Pharma –Ranbaxy merger.

In the US alone, US$ 1.2 trillion spending ahs been reduced because of generic drugs in the last 10 years. According to the latest IMS health reports, there has been a global trending shift towards generics from 27 per cent in 2012 to 36 per cent in 2017. The global generics market was valued at nearly at $US 260 billion in 2012 and is estimated at nearly $US 432 billion in 2017, registering a CAGR of 11 per cent in that period.

Pharma emerging nations have a larger market share of generics (14%) as compared to developed nations (seven per cent).

Global generic segment revenues
The global generics market was valued at $168 billion in 2013 and is expected to reach $283 billion by 2018, growing at a CAGR of 11 per cent.

Generic drugs account for around 70 per cent of the U.S. drug market by volume. In Europe they account for around 50 per cent, although the proportion varies significantly in each country. To a large extent, the magnitude of savings from generics that each country achieves depends on the utilization levels and price differentials between the generic and branded versions. In the U.S., generics use is almost 90 per cent within the off-patent (unprotected) market. However, in many European countries, potential savings are not fully exploited due to lower utilization of generics in key therapy areas

Countries including Japan, Italy, Spain, Poland and France have adopted pro-generic policies that encourage doctors or pharmacists to substitute generics for branded products. But many governments are concerned that the transition is not happening at a desired pace. In December 2013, France’s competition authority strongly suggested a shake-up of pharmacies and distributors to promote stronger competition.

Factors paving the way for the for the current consolidation phase of the generic drug industry can be outlined as follows:

This pressure makes way for an ever increasing demand for generic or off patent drugs over the branded versions.

• Continued patent cliff till 2018 provide pipeline opportunities for the generic drug industry. The growth drivers of the generic drug industry would be the bio similars, first to file and branded generics which will contribute to the value pipelines and hence contribute to the higher margins for the generic drug industry as a whole.
• Global increase in ageing populations and demographics which will aid the usage of generic drugs in less affording countries.
• For 30 million uninsured populations in the US, generic drugs would act as a savior for their healthcare spends.
• Some of the risks/threats for the existing generic drug manufacturers both small and large are as follows:
• A recently proposed regulation by the US FDA with reference to generic drug labeling can increase the levels of product liability of the generic manufacturer.
• Price and margins for the industry may decline on account of fierce competition and pricing pressures from the governments.
• Less pipeline opportunities after 2018 on account of declining patent cliff.

The road ahead for generic drugs manufacturers:
Even though industry analysts project that generic drug demand will continue to rise as consumers and payers prefer to purchase cheaper medicines, the road ahead is not worry-free. Recent results from major generic drug producers show that tighter price controls and other sales constraints are impacting revenues. Generics manufacturers are also beginning to see the downstream effects of slowing patent expiries, which means they can no longer count on rapid growth for new products. Accompanying these pressures is increased global competition, with local drug manufacturers in developing countries looking for ways to grow export revenue.

Generic drug market and India
The generic drug markets have reached a phase of consolidation by virtue of the smaller players having aggregated themselves with the larger players particularly in the post 2009 period.

Indian pharmaceutical companies exhibit supremacy compared to their multinational counterparts in India. Profit margins of Indian companies are on the rise; the recent trend of mergers and acquisitions by Indian pharmaceuticals are likely to provide a boost to the growth numbers. The total Indian pharmaceutical market is valued at US$ 8790 million with a growth rate of eight per cent. The market is predominantly a branded generic market, making the industry highly fragmented. There are more than with more than 20,000 domestic manufacturers of end-use pharmaceuticals, In the organized sector of the Indian Pharmaceutical industry there are about 250-300 companies, which control nearly 70 per cent of the total value and with one third of the total market is dominated by the top 10 players. The healthcare sector in India has experienced a paradigm shift, due to emerging trends in globalization, developing markets, industry dynamics, increasing regulatory and competitive pressures. Companies across the world are reaching out to their counterparts in an effort to take mutual advantage of core competencies in R&D, Manufacturing and marketing and the concomitant opportunities offered by the changing global pharmaceutical environment.

Rising share of Indian Generic Drug Companies
The “Specialty “generics market accounts for around 50 per cent of the US generics market and is valued at $25 billion, with the potential to outperform the growth rate of the overall market by at least two times. Currently, Indian generic drug makers get less than 15 per cent of their US revenue from sales of complex generics in the US.

Indian pharmaceutical companies have been seeking growth opportunities and have been trying to tap into niche opportunities such as injectables, oral contraceptives, and transdermals. Some of the examples of companies are Lupin and Dr. Reddy. Lupin has invested in a dedicated facility for ophthalmic and oral contraceptives in Indore, while Dr Reddy’s Laboratories has set up an injectables facility in Vizag.

The ANDA backlog at the USFDA is another reason for the slowness of the Indian generic drug formulation approvals. Available data for ANDA approvals from the year 2007-2011 shows that Indian companies account for more than 30 per cent of the total yearly ANDA approvals. Analysts predict that had the USFDA approval rate been faster, the ANDA percentage contribution of the Indian companies would be far higher than 30 per cent.

To add to the slowness of the Indian generic drug approvals for Indian companies, during their inspections at the Indian units, USFDA have imposed warning letters in greater than 50 per cent of all their inspections.

Some unanswered questions

• Is there a future for research and development with drug companies’ post 2016 when the patent cliff remains no longer profitable for the generic drug makers?
• While pharma companies are set to lose more than $267 billion once a raft of patents have expired by 2016, how will the ongoing patent expiration expected to force generic manufacturers to replenish product pipelines with new generic versions.
• Will there be an acceptance of new generic products in newer markets like Africa? Will the branded drug multinational companies be able to sustain their margins in the newer markets ?

The future
A report by the IMS Institute for Healthcare Informatics titled ‘The Global Use of Medicines: Outlook through 2016’, tells that patent expiries and the introduction of low-cost generics will reduce spending through the forecast period (2012-2016). The report explains that patent protected brand volume growth is expected to slow in advance of key patent expiries.

Industry analysts are of the opinion that the patent cliff will lead to a focus on developing targeted treatments, which require pharmaceutical companies to invent and bring more products into the pharmaceutical space to fill the gaps in the pipeline and generate sustainable revenue levels.