Generic drugs, those low-priced copies of brand-name medicines, are so popular that they now make up nearly half the 2.4 billion prescriptions written in this country every year.
That popularity hasn't filtered down to the bottom lines of the generic drug makers, however, and the industry's troubles mean consumers could soon see prices rising and their selection limited.
Last year, heavy competition slashed the industry's profits and stock prices. Four of the top nine companies lost money and the industry's share prices fell more than 20 percent. In addition, the Food and Drug Administration is having trouble keeping up with a growing number of generic drug applications. The backlog is so bad it now takes more than two years to get a new generic drug approved. The growth of generics also has awakened the brand-name drug companies, who see them as a rising threat to their businesses. These companies now frequently challenge generic applications before the FDA, stalling them further. "We're struggling. It's been a tough year," said Buddy Menn, a lobbyist with the Generic Pharmaceutical Industry Association. While Wall Street analysts say 1997 could be better, that improvement may come at the expense of patients. Several weaker companies already have been bought out, and more takeovers are expected. "Consolidation will reduce the number of players in the market," predicts Oppenheimer & Co. analyst Mike Krensavage, and that means higher prices in the long run. Generics owe much of their popularity to health maintenance organizations, which insist their members take these cheaper medicines. Generics are usually introduced shortly after the 20-year patent on their brand-name counterparts expire, ending the original maker's legal monopoly on the drug. Initially, generic versions usually sell at a discount of about 30 percent. Quickly, however, as more companies introduce the same drug, higher competition forces deep price cuts. A case in point is Capoten, a high-blood-pressure drug originally made by Bristol-Myers Squibb Co. that used to wholesale for about $73 for 100 tablets. The first generic version went on the market last February and within a few weeks a dozen companies were selling it. "The price collapsed within days to about $5 per hundred," said Bob Milanese, president of the National Association of Pharmaceutical Manufacturers, another generic trade group. This hasn't necessarily helped consumers. While the average wholesale price of generic drugs fell last year by 14 percent, markups by middlemen boosted the retail price to consumers by nearly 6 percent, according to industry researcher IMS America. Analysts don't expect the situation to get better as consolidation of generic manufacturers will ease the competitive pressure to discount. Generic drugmakers also were hampered last year by a shortage of brand-name drugs losing patent protection. In 1996 several major drugs got patent extensions of 18 months or more thanks to the General Agreement on Tariffs and Trade, a world trade treaty that required the United States to change its patent rules. This year looks busier. Among the top candidates: the ulcer drug Zantac; Zovirax, a treatment for genital herpes, shingles and chicken pox; and Hytrin, for enlarged prostates. However, proposed FDA budget cuts could worsen the agency's already long generic backlog and stall these drugs for months. It now takes 28 months to get a generic drug approved, up from 15 to 18 months in the late 1980s, said David Weeda, a generic industry lobbyist. …