Generics comprise some 50% of the market but less than 18% of costs. But they are threatened by tendering schemes restricting market access. So, what does that mean for the future?
Emeritus Professor of
University of Sheffield
Hospital and Healthcare
The future of the European generics industry is now under serious threat, according to Greg Perry, the director general of the European Generic Medicines Association. Given that generic medicines account for nearly half of all the medicines dispensed in Europe, this is an issue that must be taken seriously. The Czech Presidency of the EU appears to share this view, with Dr Pavel Hrobon, the deputy minister of health, pointing out the critical role of the generics industry in sustaining EU healthcare. Whilst generic medicines make up 50% of the volume of drugs dispensed, they account for less than 18% of pharmaceutical costs. They claim a price differential of 20-90% to the patent-expired originator product. They now operate in the critical illness areas as well as self-medication. According to Mr Perry, the problems result from the industry being required to operate in a highly uncompetitive environment, live with government-enforced price reductions, restrictive tendering systems, increased regulatory costs and a lack of government measures to stimulate greater public access to and use of generic medicines.
The use of generic medicines has increased substantially in recent years, although there remains a wide variation between countries, which are clustered into five bands (Table 1). Some of those countries with the lowest generic medicine volumes are also paying the highest prices for nongeneric drugs. There is a twofold price difference within Europe for a basket of average medicines. With all economies under pressure, this level of variation is probably untenable, and we can expect those countries with low generic takeups to begin to take action, thus putting pressure on the traditional drug manufacturers. For example, Hungary is planning to cut health budgets by 30 billion forints (€4.5bn), with 30% coming out of drug expenditure, which may of course include generic medicines.
The whole of the drug industry operates in highly regulated markets designed to secure patient safety and guard against
excessive profits, at the expense of governments who meet the vast majority of healthcare costs in Europe. It is certainly not an open market, and until recently the generics industry has not been able to offset research and development costs against price in their negotiations with governments. The generics industry is now claiming to be investing some 6-16% of annual revenue in R&D, mainly in production technologies, drug delivery systems and new dosage regimes.
The issue that seems to be challenging the industry most at present is tendering schemes that provide short-term market access for only a limited range of products for a limited range of companies. Some would call it aggressive public sector purchasing, which is fine as long it does not have the effect of reducing competition and in the long term increasing costs. I cannot imagine that the industry would want to see European contracts, so it will have to live with 25 or more national markets with variable regulation. Although European-wide purchasing seems unlikely as it would effectively remove the market, some politicians must be thinking about the cost-cutting potential of countries working much more closely together.
It would, however, make sense for the European Commission to keep a wary eye on the generics sector as a whole, given that it employs over 130,000 citizens and without it healthcare costs would rise enormously. In the short term the future profitability of the industry must lie in expanded volumes in those countries with low uptakes. Indeed, the current financial crisis may yet turn out to be the best marketing opportunity for generations.