Originator and generic medicine: pricing and market share

Abstract

PurposeThe purpose of this paper is to examine the effects of generic medicine competition on the market share growth and pricing of originator brand medicine in the South African private pharmaceutical market.Design/methodology/approachRegression analysis is applied to market share data of originator brand drugs that have been exposed to competition from generic substitutes, based on an agency model of the prescribing physician, the pharmacist or the medical scheme.FindingsThe results indicate that the price of an originator brand medicine relative to the weighted average price of its generics has a significant negative impact on the change of its market share. Investigations into the prices of the originator brands, in relation to the number of generic equivalents in the market, indicate that the number of generics available in a specific market has a significant positive impact on the relative price of originators, thereby making originators relatively more expensive compared to their generic competitors. At the same time, the results show that the absolute price of the originator brand medicines declines as the number of generic equivalents in the market increases.Practical implicationsThe results indicate that, for all modules pooled together, the relative price of the originator product to that of the generic equivalent, is responsible for a significant reduction in the relative change in the market share of the originator medicine. When analysed on the level of anatomical class, or the individual molecule, results are not consistent. For affordable healthcare, the results support the reduction in barriers to entry for generic medicine. Furthermore, the results support education and incentives for doctors, pharmacists and end‐users to develop generic alternatives as trusted brands in their own right.Originality/valueThis study quantitatively assesses the effect that generic medicine competition exerts on the market share of originator medicines in South Africa.