US generic prescription drug markets 2004‒2016

Submitted: 6 December 2018; Revised: 12 December 2018; Accepted: 14 December 2018; Published online first: 19 December 2018

Generic drugs are currently central to disease treatment in the US. However, recent policy concerns have focussed on generics supply inadequacies and the perceived increase in prices of some generic drug products. To further explore the changing landscape of US generic prescription drug markets, a study published by the National Bureau of Economic Research (NBER) in the US examines manufacturer entry and exit, the extent of competition and the relationship between supply structure and inflation adjusted prices among generic drugs, between 2004–2016 [1].

In recent years, policy developments in the US have resulted in a shift towards generic drug use. Their share of all retail and mail order dispensed drugs increased from 36% in 1994 to 87% in 2015. In their early years following inception, generic drug products largely provided increased access to safe and effective treatments at prices that continued to decrease. However, after 2009, the prices of some generics started to increase for a number of reasons. It is posited that these include low generics profit margins, concentrated buying power, and pharmaceutical plants failing to meet standards set out by the US Food and Drug Administration (FDA). Since 2012, massive price increases of generics have been observed.

With this in mind, the authors of the study who are based at NBER, sought to answer the following questions: ‘How competitive are markets for generic drugs?’, and ‘How has the competitive market structure varied over time and across drug formulations and therapeutic classes?’. To do this and better understand the landscape of generic prescription drugs in the US, they conducted an empirical evaluation using national quarterly data from QuintilesIMS’s National Sales Perspectives (NSP) database between 2004 Q4 and 2016 Q3, on US prescription drug sales. They undertook several descriptive and statistical analyses.

Overall, the team found that between 2004–2016, approximately 500–650 manufacturers supplied prescription drugs (with a steady increase over this period).

Total annual sales revenue derived by both brand and generics manufacturers increased substantially over time, from approximately US$300 billion in 2004 to US$450 billion in 2016. The study found that there was a statistically significant increase in the price of generics in the US over time. This became particularly evident following the implementation of the 2010 Affordable Care Act (ACA) and the 2012 Generic Drug User Fee Amendments (GDUFA I). There was a positive correlation between price increase and the reduction in generics manufacturers over time. Their analyses also isolated four sets of important novel findings relevant to the US generics markets which are summarized in the following sections.

Small generics markets

Through defining the product market by molecule dosage form (that may be manufactured or marketed by multiple suppliers), the team found that the size of generics markets are surprisingly small. Here, the median sizes of drug markets have inflation adjusted sales revenues starting under US$10 million per annum but increasing over time.

Generic entry and exit rates have differing time trends

The number and rate of generic drug products entering the market increased up to 2013, after which they decreased. In contrast, the number and rate of generic drug products exiting has continually increased over time.

Decreasing number of generics manufacturers

The evaluation showed that the median number of generics manufacturers in each market is approximately two and the mean approximately four. Authors of the study consider these numbers to be relatively low. Their evaluation also provides evidence suggesting that there have been decreasing numbers of generic drug suppliers/manufacturers between 2004–2016, particularly following implementation of the Affordable Care Act (ACA) and Generic Drug User Fee Amendments (GDUFA I), both of which have contributed to more drug exits and less entries over time. In addition, evidence suggests that approximately 40 per cent of markets are supplied by just one generics manufacturer. In regard to this, it was also found that there are likely to be two or fewer suppliers of non-oral formulations of generic drugs, whereas for oral formulations are likely to have more suppliers.

Low levels of competition in the generics market

The level of competition in the generics market between 2004–2016 was determined by calculating the Herfindahl-Hirschman Index (HHI), a measure of market concentration. In this case, market concentration is the extent to which sales in a drugs market are dominated by one or more manufacturers. During the study period, the team’s analysis showed a decline in concentration for most therapeutic classes of generic drugs. As such, the HHI values indicate distinctly low levels of competition between manufacturers of generic drug products.

Monopolies reign over US generics

As a result of these findings, the authors conclude that the US generic drugs market is in a relatively steady state with low levels of competition between generics manufactures. This contrasts with previous assumptions and published works that assume a high level of competition involving four or more competitors following patent expiry of originator molecules. The generic drugs market is made up of relatively small revenue products that have a monopoly, or at most a duopoly. The authors note that, considering the lack of competition, it is perhaps surprising that the price of generics has not risen further.

The study concludes with a summary of a number of testable hypotheses based on economic theory that may explain the US generics landscape observed. The authors encourage further investigation of these hypotheses in order to better understand generics markets and the impact of policy on keeping products affordable.

Competing interests: None.

Provenance and peer review: Article abstracted based on published scientific or research papers recommended by members of the Editorial Board; internally peer reviewed.

Alice Rolandini Jensen, MSci, GaBI Journal Editor

1. Berndt ER, Conti RM, Murphy SJ. The landscape of US generic prescription drug markets, 2004–2016. NBER Working Paper No. 23640.

Disclosure of Conflict of Interest Statement is available upon request.

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