The Generic Threat in Global Pharmaceuticals

Abstract

In recent times, the pharmaceutical industry has seen a lot of changes. Big players like Pfizer and Merck are focusing on industry consolidations. The reason is obvious; the threat from competition. Many blockbuster drugs, like Lipitor, are slated to lose their patent protection over the period from 2010-2013 and would be open for generic substitution.

 

Price is the primary differentiator between a branded drug and its generic substitutes. Currently, this is the only basis for competition between the two. Generic drugs have gained popularity amongst consumers, governments and third-party payers (like insurance companies) because these are cheap.

 

The increased competition from generics should have driven down drug prices and benefitted consumers. Unfortunately, it has not. The average price rise of branded drugs has been three times faster than the average price rise of generic drugs. The complex pricing model and the relatively inelastic demand for drugs make it easy for companies to increase prices and maintain margins. From a consumer point of view, increasing prices should be the last strategy adopted by pharmaceutical companies to counter the losses due to increased competition. OTC drug production, reformulation, and mergers and acquisitions are some viable alternatives.

 

In this report, we examine the genesis and the magnitude of the generic threat and look at some of the consumer-friendly corporate strategies to counter the generic threat.