Generic drugs: are they the future for affordable medicine?

Abstract

Teva Pharmaceutical Industries—the largest manufacturer of generic drugs in the world—is in trouble. This multinational company, which produces a large portfolio of generics—including several widely used oncology agents such as cisplatin, docetaxel, letrozole, and gemcitabine—has announced it will be cutting 14 000 jobs (almost a quarter of its global workforce) in attempts to salvage its ailing business. The move is a drastic response to Teva's financial woes: in 2017, the company lost more than US$20 billion from its market value, its US profits tumbled by 60%, and it is currently saddled with debts of $35 billion. The job cuts will be felt most acutely in Israel, the location of Teva's global headquarters, where it is one of the largest private sector employers and—alarmingly—where its shares prop up much of the national pension pot. What has gone wrong, and is Teva's situation symptomatic of wider issues in the generics industry? In the past 40 years, Teva has emerged as a major global player in the pharmaceutical industry, leading the movement towards the development of cheap generic drugs and biosimilars. In the face of continually escalating prices of trademarked drugs, generics offer hope as an alternative way of providing more affordable medicines to a larger number of people. A strong argument for the generic drugs market is that a high level of marketplace competition helps to keep prices low. Indeed, with the development of more generics over the years, the prices of many have fallen, but abuses of the market do exist. Lower prices present a burden to generics manufacturers who are under increasing pressure to reduce costs and pass on savings to patients, squeezing their profit margins. Such financial challenges have, in turn, created new problems, such as shortages of active ingredients or delays in manufacturing leading to decisions to discontinue some drugs altogether. As drugs leave the market, competition is reduced and prices often rise, with sharp price escalations in older generics becoming increasingly common. These cyclical fluctuations in generic drug prices are not good news. The generics drugs market might have become a victim of its own success, as large generics manufacturers are being engulfed by the same market forces the patent-based pharmaceutical companies face. Generics companies that also manufacture branded drugs suffer a double blow when the patents on their trademarked products run out, opening the door for their competitors to develop copycat versions; for example, Teva's financial woes were compounded in 2017 by the patent expiration of one of its most successful branded drugs—Copaxone (glatiramer acetate) for multiple sclerosis. Combined with falling profits from cheaper generics, such financial challenges mean that generic drugs companies are applying price hikes on other drugs. Meanwhile, non-generic drug companies are using acquisitions to continue to grow their revenues as quickly as possible, and as such many have bought smaller generics manufacturers to diversify their portfolio. These mergers between competitors further reduce market competition, which in turn also drives up prices. The generic drugs market is clearly not functioning as intended and might even be distorting the pharmaceutical market as a whole. Instability and vulnerability to economic forces mean that the generic drugs market alone cannot be relied upon to lower drug prices and to ensure the continuous supply of affordable crucial medicines to those who need them. What can be done? Better marketplace regulation is needed to maintain appropriate levels of supply and competition and to keep prices low, both by encouraging the development of new generics and protecting major generics manufacturers like Teva that are seen as too big to fail. Similarly, policies that actively encourage research into the development of similar agents to drugs that have little or no competition in the marketplace would help. The level of competition itself also needs regulation to avoid abuses of market conditions. The increasing difficulties in the generic pharmaceuticals industry suggest that the prevailing conditions are not optimal to meet the need in the health-care market. New policies to prevent market distortions and to ensure that generics manufacturers do not adopt the same de-stabilising economics of the patent-based pharmaceutical companies that created the need for cheaper generics in the first place are vital.