Advances in drug discovery: The patent cliff is set to drive global generic uptake despite tougher market conditions

According to a new Datamonitor report, branded pharmaceutical companies are set to lose $82bn in sales by the end of 2014 due to the imminent patent cliff. However, this presents a significant opportunity for generics players at a time when the generics market is not only becoming increasingly competitive, but also facing tougher regulations as well as pricing pressures.

Datamonitor's report "Pharmaceutical Key Trends 2011 - Generics Market Overview" indicates that in response to rising healthcare expenditure, aging populations, and the greater use of expensive treatments, governments in developed markets are looking to bolster generic uptake in order to contain costs. Physician prescribing by international non-proprietary name, in addition to automatic substitution and pharmacist incentives, are key tools to drive generic uptake. The use of reference pricing as observed in Germany further drives uptake, with on-patent brands facing generic competition from generic versions of me-too drugs. The European Commission has put forward suggestions to facilitate generic market entry, while the introduction of user fees in the US will serve to expedite generic approvals alongside strategies to speed-up processing of citizen's petitions benefiting generics players.

However, price cuts, high brand loyalty (particularly in Italy, Spain, and Japan), and restrictions on pharmacy chains in France and Germany also present barriers to generics companies. In the US, despite the addition of many new customers and the continued drive to increase generic uptake as a result of the healthcare reform law, generics companies are set to experience further downward pricing pressures and will be forced to operate with ever-decreasing margins, focusing on consolidation and cost-cutting.

In an effort to maximize the opportunities that the patent cliff will bring, while limiting the impact of pricing and growing regulatory pressures, generics producers continue to utilize mergers and acquisitions in order to expand their geographic reach, product portfolio, and manufacturing capabilities.

Generics producers are also increasingly looking to launch generic versions of complex small molecule drugs as well as entering the biosimilars market, exemplified by the FDA issuing a positive opinion for Sandoz/Momenta's generic version of Lovenox (enoxaparin sodium; Sanofi-Aventis) in July 2010.

For generics producers operating in Brazil, Russia, India, and China, the prospects of expanding populations and healthcare coverage are exciting. These markets can, however, be challenging to enter given frequent protectionist policies favoring domestic producers, fierce competition, and pricing regulations. Consequently some generics producers have chosen to use mergers and acquisitions to expand their geographic coverage and facilitate market entry. This is exemplified by Teva's acquisition of Peru-based Corporacion Infarmasa in January 2011, which gave the company wider access to the Latin American market, a key region which is predicted to see strong future sales growth. Similarly, some branded pharmaceutical companies are also looking towards the generics market to drive geographic growth, with Abbott having acquired Indian drugmaker Piramal Healthcare in September 2010.

Related research

Pharmaceutical Key Trends 2011 – Generics Market Overview: Patent cliff set to drive global generic uptake despite tougher market conditions [access report]

Pharmaceutical Key Trends 2011 – Pharmaceutical Industry Infrastructure Overview: Pharma innovates, diversifies and contains cost in order to grow profits [access report]