The past two decades can be seen as a golden age for generics, thanks to a strong pipeline of blockbuster drugs coming off patent and the persistent push to cut costs by insurers and governments. Generics companies have boosted shareholder returns by gaining profitable US exclusivities and taking advantage of “first to file” opportunities, while improving commercial infrastructure and sales strategies.
The result, beyond strong sector performance, has been a predictable increase of new market players wanting to share the returns. Competition has intensified, particularly in undifferentiated solid oral-dose products. At the same time, past success factors, including the off-patent pipeline, have weakened. New opportunities, such as the rise of higher-value generics and biosimilars, are stretching the traditional generic manufacturing skill set.
Meanwhile, sole exclusivities for being first to file in the US are giving way to less profitable shared exclusivities, and innovators are working harder to maintain market share when their products lose patent protection. As channels have consolidated, their power has increased. Enhanced regulatory scrutiny maintains pressure on cost and quality of supply.
Efforts by generics companies to address these challenges by cutting costs and generating scale through vertical integration have largely run their course. Maintaining the industry’s momentum will require new approaches.
An important strategic consideration now is to drive differentiation in both drugs and markets served. By necessity, that will mean more complex and hard-to-make generics with higher barriers to entry, such as inhalables and patches, or a focus on areas with fewer reimbursement pressures. Biosimilars could also offer promise for long-term growth for companies that can navigate the near-term challenges. The resulting, more sophisticated product portfolios will require differentiated commercial models and better pricing strategies with more skilled engagement with payers and important accounts.
These dynamics represent opportunities for those companies that can adapt. As some companies focus their portfolios and others are unable to supply products as they run afoul of regulators, nimble competitors will be able to react rapidly and take advantage of these developments. Generics companies that can build a quality advantage and develop an agile, flexible supply chain will be able to make use of these supply disruptions.
Successful generics companies also need to exploit M&A and partnership opportunities, targeting in particular relationships with companies that have differentiated and sustainable products themselves or presence in fast growing markets.