The generics industry faces two opposing forces that complicate profitability and growth.
On the one hand, demand for generics continues to rise. In 2019, patent expiries totaling nearly $8 billion in U.S. annual sales opened up substantial opportunities for creating generic counterparts. A significant number of additional expirations are expected in the next five years.
At the same time, the industry is grappling with unstable economics and disruptions to the supply chain. Although most generics players outsource manufacturing to less expensive markets to remain profitable, offshore manufacturing raises quality issues and other risks.
The intersection of opportunities and challenges can create a vicious cycle:
- Rising healthcare costs drive increasing demand for generic drugs.
- More and more generics manufacturers invest to increase supply and meet patients’ needs.
- An expedited FDA generics approval process helps accelerate manufacturers’ ability to keep up with demand.
- However, when increased supply outstrips demand, product prices tend to fall.
- Downward pricing pressure is exacerbated by the increased leverage of consolidated drug buyers.
- As prices decline, drug manufacturers see a decrease in profitability.
- Many choose to exit markets, thus causing greater demand than supply.
And so, the cycle continues. Generics manufacturers have an opportunity to break this cycle by pursuing one or more of the three scenarios for change we present in our recent thought leadership – Generics 2030: Three strategies to curb the downward spiral. In short, these strategies are:
- Become bigger and better: Consider mergers and acquisitions that increase scale to allow more effective negotiation with consolidated buyers.
- Eliminate the middlemen: Redesign the supply chain through forward/backward integration to reduce dependence on distributors and active pharmaceutical ingredient suppliers and help secure the supply chain in times of volatility.
- Develop higher-value generics: Instead of focusing on identical generic products, invest in innovation to create differentiated, high-value products.
Generics 2030: Three strategies to curb the downward spiral
View our companion video for a dynamic look at the forces complicating the generics landscape and the strategies that will help break the cycle and pave a pathway to success.