Generic Industry Poised for Growth

DECEMBER 01, 2005
Kathleen Jaeger

More than 20 years ago, when the law that spurred the development of the generic pharmaceutical industry first went into effect, generics stood at only 18% of total prescriptions dispensed in the United States. Today, the generic industry accounts for more than 53% of US prescriptions and $52 billion in revenues worldwide, according to figures released by IMS Health at the Generic Pharmaceutical Association's (GPhA's) first annual policy conference in September.

Graham Lewis, IMS Health vice president for global pharma strategy, said that the generic industry's continued growth is a result of several factors. First, enormous pressures are present in the US health care system to hold down costs. Second, the Medicare prescription drug benefit, which goes into effect on January 1, 2006, coupled with an aging "baby-boomer" population with increasing health care needs, is expected to boost generic sales. Third, a number of blockbuster drugs will be coming off patent during the next 5 years, providing significant opportunities for growth.

Health Care Costs

Across the nation, employers, insurers, and federal and state governments are wrestling with different ways to rein in health care costs. Some employers are encouraging their employees to use mail-order pharmacies, while others are increasing health care premiums and copays. At the same time, government programs such as Medicaid are trying to cut costs through reductions in prescription drug costs. It is easy to see why: prescription costs are increasing, with brands costing an average of $96.01 and generics costing an average of $28.74, according to 2004 figures from the National Association of Chain Drug Stores.

Regardless of the cost-reduction tactics under consideration, it is clear that generics will be a large part of the cost-containment solution. Generics can cost 30% to 80% less than their branded counterparts, and a 1% increase in the nationwide use of generics could save consumers $4 billion, according to GPhA.


Next year, the generics industry is likely to receive a boost from the implementation of the Medicare prescription drug benefit. Some 43 million Americans will be eligible for the benefit, which includes strong incentives to dispense affordable generics when they are available.

The new benefit, in combination with Medicaid and other public health care programs, also will make the federal government the largest health care provider in the nation in 2006, offering coverage to 40% of Americans, up from <25% in 2005, according to IMS Health. Given the cost implications of that increase in coverage, the use of affordable generics is expected to rise.

Growth Opportunities

Although prescription drug sales—both branded and generic—are expected to slow down in coming years, the generic industry is still expected to grow by roughly 7%, said Lewis. One reason is that a number of blockbuster drugs will be coming off patent, providing opportunities for generics to enter the market. Blockbuster products coming off patent are valued at $27 billion in 2007, $29 billion in 2008, and $21 billion in 2009, according to Bain and Company.

Despite the opportunities for growth, the generic industry remains concerned about the resolution of issues such as authorized generics, a practice that devalues the incentive to bring generics to market, and the lack of a codified, definitive, abbreviated approval pathway for generic biopharmaceuticals, widely viewed as the "next frontier" for the generics industry. Both issues are gaining attention from members of Congress, and the FDA has pledged to release guidance documents outlining how the agency might approve generic biopharmaceuticals by the end of this year.

Generic biopharmaceuticals and authorized generics, among others, remain priority issues for the generic industry, and GPhA is working with Congress, the FDA, and the Centers for Medicare and Medicaid Services to find solutions, because consumers deserve timely access to affordable medicines.

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