Generic growth bodes well for vendor firms

- Last updated on GMT

Related tags: Pharmaceutical industry, Us

The market for generic drugs is going to expand from its present
level of $35 billion (€29bn) to $80 billion in 2008, as
cash-strapped healthcare payors turn increasingly to cheaper

And the growth rate of the generics industry will double that of the branded sector - at 21 per cent a year versus less than 10 per cent - which should be good news for companies that specialise in supplying ingredients and machinery for pharmaceutical applications, according to data from IMS Health.

Earlier this year, a spokesman for tablet press and coating company Manesty told​ that its primary customers are now generics houses and contract manufacturers, accounting for two thirds of sales. In the late 1990s, branded pharmaceutical companies would have accounted for 80 per cent of its output.

The generics industry is emerging as one of the key drivers for growth for suppliers, at a time when the branded industry has been reining in investment in the face of pricing pressures, dwindling product pipelines and the expiration of a raft of top-selling compounds over the next few years.

Just this week, the Italian government put a cap on the amount it spends on medicine under the national health system, and the governments in other European countries such as France, Germany and Spain are all exploring ways to limit the amount they spend each year on drugs.

In France, for example, the government has tabled a plan specifically aimed at boosting the take-up of generics, a move which it claims will save it €1 billion a year from 2006.

But while generic use is relatively high in countries such as the UK and Germany, in France and the southern European states it has not yet taken off, and this provides a geographic opportunity for continued growth.

The obvious solution to rising drugs bills is to turn to lower-priced generics, and along with patent expirations on a number of top selling drugs this is driving the growth of the generic sector.

Meanwhile, higher generic drug use in the US in 2003 slowed rising US costs per prescription, according to pharmacy benefit manager Express Scripts' annual Drug Trend Report.

Generics use has historically been low in the US - at around 5 per cent of the market - but is growing. And the effect is that the average cost per prescription in the US was pegged back at a 7.9 per cent increase last year, from $51.76 to $55.86, significantly less than 2001-2's 13.1 per cent rise and the lowest rate in the past four years.

Generic use grew to a record 48 per cent among Express Script's 50 million members in 2003, spurred by the use of several prominent new drugs - such as the antidepressant fluoxetine, omeprazole for gastrointestinal disorders and the blood pressure drug lisinopril.

Brand name drugs accounting for over $38 billion in sales last year are facing generic competition by the end of 2008, says Express Scripts, adding that, for every 1 per cent increase in generic drug use, prescription benefit plan sponsors save 1 per cent off their cost for drugs in providing the benefit.

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