Generic growth continues, price inflation problematic

Although growth has been high for new specialty and brand-name drugs in the past year, generics continue to be a central part of the U.S. pharmaceutical market. Though as of June 2015 generics only make up 10% of spending growth for the year — down from 42% in 2011 — generics still account for 17% of spending and 83% of prescriptions, according to IMS Health data.



The number of generic prescriptions dispensed has been growing since 2010, though that growth has slowed. For the first six months of 2015, 83.2% of total prescriptions dispensed were generics, versus 82.1% in 2014 — slower than a 5% jump between 2011 and 2012. And though modest, the total number of generic prescriptions is increasing by 3.2% as the total number of branded prescriptions decreased 5.6% for the first six months of 2015. So far this year, about 27% of the growth in generics has been due to injectables, but overall the category’s growth is dependent on older patients with chronic diseases, as they make up a considerable portion of the demand for generic drugs. In the coming years, IMS expected generic prescription demand to top out at about 90% of total prescriptions.



However, one trend that might prove problematic given generics’ centrality to patients and the pharmaceutical market is generic price inflation, whose causes are three-fold, according to IMS Health.



First, there is an increased emphasis on quality of products as a result of regulation; companies who have to invest more into their quality systems might be compelled to raise prices in an effort to mitigate the cost of this investment. Secondly, generics companies on the whole have had fewer new product launches, which are one of the biggest drivers of their revenue. If fewer products are being launched, there’s an incentive to charge more for existing medication. Finally, inflation is driven by customers’ increased purchasing power, which triggers manufacturers to make up costs.



Further complicating the state of the generics market is the continued move of prescription drugs to OTC status. In the past two years, Nexium, Flonase and Rhinacort have all made the switch, making consumer access to them easier and prescriptions unnecessary. These likely aren’t the last drugs that will make the switch in the coming year. As of last May, Eli Lilly and Co. and Sanofi entered a licensing deal and announced an anticipated 2018 OTC launch of erectile dysfunction drug Cialis.



But, one of the trends with the most potential and uncertainty is the September launch of the first U.S. biosimilar, Zarxio (filgrastim), by Sandoz. The court ruling that approved the drug’s launch also put a six-month delay between approval and launch for all future biosimilars. Though the impact this will have on biosimilar manufacturers remains to be seen, Zarxio is likely the first of several similar launches to come.