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
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originally made by Bristol-Myers Squibb Co. that used to wholesale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
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. …