Generic drug market strong through 2015

August 15, 2010

The generic market is likely to remain very strong between now and 2015, but the combination of healthcare reform and a lack of significant drugs coming off patent means that the outlook between 2015 and 2020 is murkier.

Key Points

» When asked to predict the outcome of an event, the character Yoda in the film "The Empire Strikes Back" said, "Hard to say. Always in motion the future is."

That wisdom also applies to the generic drug market. The market is likely to remain very strong between now and 2015, but the combination of healthcare reform and a lack of significant drugs coming off patent means that the outlook between 2015 and 2020 is murkier.

However, between 2015 and 2020, an "innovation drought" period experienced by the brand manufacturers will catch up with the generic market and create an opportunity drought for generics as fewer generics are introduced, Long said. In addition, starting in 2014, the effects of healthcare reform will begin to be felt in earnest.

"There will be pluses and minuses of healthcare reform on the generic business," Long told Drug Topics. "When you have a squeeze on healthcare costs, that's generally good for generics, because it's a lower cost of therapy. There will also be an expanded patient population, with the uninsured moving into the mix in 2014 through Medicaid and health insurance exchanges, so that should be good for volume."

In addition, the "biosimilar pathways" provisions of the Patient Protection and Affordable Care Act opens the door for generics manufacturers to bring generic versions of biotech drugs to market, presenting another potential boon for generics.

Healthcare reform: The big unknown

"Those are three pluses for the generics market, but there is one big unknown: the impact of healthcare reform on margins," Long said. "The opportunities in volume that will be presented may be tempered by pressure on margins."

The unknown here is that since brand manufacturers are committed to filling 50% of the donut hole (with the government closing an additional 25%), there might be more brand loyalty and less switching to generics.

A potential downside of healthcare reform could be an increase in reimbursement disputes, according to Long. He noted that some of those individuals currently uninsured will be covered by Medicaid, which is already a source of disputes between states and pharmacies. "The states want to lower the reimbursement; the pharmacies think the reimbursement is too low to begin with. We'll see even more of that in 2014," Long said.

Long also sees trouble brewing when the injunction against the Average Manufacturer Price (AMP) legislation is removed. "The National Association of Chain Drug Stores and the National Community Pharmacists Association have been fighting it, but eventually the rules in the AMP legislation will go through," Long said. "Pharmacy has said the proposed reimbursement for about 30% of all generics will be less than what it costs them to buy the product. So that certainly seems to pave the way for more disputes going forward."