The evolving medicines model
The success of the UK generic market is founded on high volume of use, low barriers to market entry and low levels of intervention. It is a tried-and-tested method which sees three quarters of all prescription medicines in England met by a generic product. Every year, generic medicines deliver more than £13 billion of savings to the NHS due to competition between manufacturers.
The market mechanics are so simple and effective that they are often overlooked. Large pharmaceutical companies are awarded patent protection on the successful products they develop and manufacture.
For every product that makes it through the strict regulatory process, there are many others that don’t get past the research stage. Therefore, to incentivise these companies, they are granted the exclusive rights to manufacture and market the medicine and thus sell it to the NHS. This period of exclusivity is typically in place for around 15 years.
Once that period of exclusivity is up, generic manufacturers market their own products, which have the same clinical outcome for the patient. This means the NHS is then able to choose from multiple suppliers of the same product, typically between three and ten companies at launch, and therefore the price decreases due to competition.
The generics model: simple and effective
On average, the price of a medicine quickly reduces by about 90 per cent compared with its on-patent cost at launch. This saving means money can be invested elsewhere and more patients can be treated for less cost. Multiple suppliers also add to the security of supply.
It is a simple and successful formula that sees generic products fulfil around 75 per cent of all prescriptions in England for just under a third of the total cost the NHS spends on medicines, including £800 million funding for community pharmacy from generics.
However, as newer medicines evolve, this model may be challenged. The future pipeline of molecules coming off patent will focus on more targeted patient groups, increased innovation in terms of medicines delivery and more complex conditions.
The volume of use of these newer products will be lower, regulatory barriers to entry will be higher and there is a risk of greater government intervention in the market. The very factors that drive the success of the generic market in the UK may be under threat.
This will change the model for generic medicines manufacturers. For example, historically most products have been dispensed in primary care by pharmacy, with lower volume products being used in hospitals, at home and in clinics. With the advent of more complex medicines, this split may become more equal, which presents additional challenges.
Fitting in to the transformation of the market
Often manufacturers will take a whole-market approach across their portfolio of medicines where some products are priced so they are profitable, while others will be supplied at cost or even at a loss. This holistic approach maintains supply for a large range of medicines, while allowing companies to make a profit on their overall investment.
With the market dynamics changing and for more complex medicines to become available and perhaps only used by a smaller number of more disparate patients, it is important manufacturers can balance their approach commercially.
Therefore, the traditional bedrock of high-volume, low-cost generics needs to be maintained in a way that allows companies to make the investments required for the development of more complex treatments. This could mean average prices, which are currently some of the lowest in Europe, potentially rise.
Allied to this is the inevitable transformation of the market in terms of delivery of medicines. The future would suggest an increasing need for digital pharmacy and home delivery. So, for a variety of reasons, a critical sector of the healthcare industry, which has thrived on a model of simplicity, will need to adapt to transformative change, while maintaining its mission-critical goal of ensuring the right medicine gets to the right patient at the right time.