Over 70% of prescriptions today are filled with generic drugs. Once a branded product loses patent protection, they experience generic erosion and a rapid decline in market share of prescriptions. With the healthcare market becoming increasingly more managed (think government, insurers, and Pharmacy Benefits Managers) and the dramatic difference in price (generic drugs being significantly less expensive) it doesn’t take long for generic drugs to replace branded products in the market.
But … what would happen if the branded product manufacturers (Big Pharma) started to “match generic drug prices” once their product patents expired? As generic drugs of the branded product come to market, the branded product matches their price or even prices slightly lower than the generic drug to preserve their market share. Surely, nobody could be a lower cost manufacturer than the innovator, brand manufacturer.
Let’s think about this. The branded company development costs are well behind them. Manufacturing facilities, equipment, and staff are already in place. Training, quality systems, and regulatory compliance requirements are also in place. Operational efficiencies have been honed over years of production. Branded manufacturers can certainly negotiate at least as good a terms on API (active pharmaceutical ingredients), packaging, and supplies as the generic drug companies. And while branded manufacturers may have higher “overhead expenses” that’s an accounting allocation issue. Building a patient base, marketing, sales, and supply chain logistics are already in place for the branded product.
The generic drug company on the other hand has to develop the generic product (formulation and establishing bioequivalence can be challenging), purchase and set up manufacturing capabilities (or retool what they have), source API, packaging, and supplies, put in place new manufacturing SOPs (standard operating procedures) and regulatory required quality processes. They have to hire and train new personnel (or at least retrain current staff), develop their regulatory filing, and secure FDA approval. They may even have to challenge the patent validity of the innovator product. And once approved, they have to market to and negotiate with the supply chain and the managed market. In the end, these are all new costs for generic drug companies that have to be covered in the price of their new product entry.
In the past, branded products matching generic drug prices would have meant leaving money on the table and forfeiting profits as generic drugs gradually made their way into the market over a period of years. Today, however, it only takes a matter of months before a majority of branded prescriptions drugs can be converted to generics.
I’m sure somebody has already done the math on this from a Big Pharma profitability perspective but I still believe that “matching generic drug prices” could have value for patients and Big Pharma. Matching generic drug prices would preserve a large patient base of lifetime revenue (albeit at lower margins) for the branded product. It also rewards loyal patients with lower prices for the same drugs they may have been taking for years. It would certainly make it easier and more efficient for healthcare providers, patients, and the managed market in that there would be no reason to worry about changing patient prescriptions. And, while Big Pharma might view this as “throwing in the towel” , this approach would be a challenging “game changer” for the generic drug industry. firstname.lastname@example.org