The generics industry
Generic medicines and the market
A generic medicine contains the same active ingredient as the equivalent original branded drug, and is marketed once the originator's patent protection has expired. Generics are authorised to the same standards of safety, quality and efficacy as original branded drugs, and have to demonstrate in clinical studies that they are bioequivalent to the original product: i.e., they deliver equal medical benefits to the patient.
Generic medicines are therefore normally interchangeable with the equivalent branded drug. On the rare occasions where this is not the case, the MHRA (Medicines and Healthcare products Regulatory Agency) requires generic medicines to have a brand name so that patients may be maintained on a single manufacturer's product.
Generic medicines make the drugs bill affordable and promote innovation. When an original branded drug loses its patent protection, generic equivalents are launched, typically by many manufacturers. The competition between these manufacturers drives down prices, often leading to a reduction of 90% or more within a few weeks.
The onset of generic competition also drives innovation. Because the originators know that their products will eventually face generic competition leading to a significant fall in sales and income, they need to research new medicines.
This interaction between branded and generic medicines is a virtuous circle: today's new drug is tomorrow's generic, and that generic provides the headroom for investment in yet further new drugs as well as the commercial incentive to develop them.
Many countries in Europe determine the cost of their generic medicines by a range of mechanisms, including basing them on the price of the equivalent branded drug, tendering, or other forms of reference pricing. This stifles competition and reduces the number of companies in the market, leading to increased risk of shortages of medicines. It also delays generic entry to the market, costing health services money due to the later onset of generic competition.
In the UK, market prices are set by competition with no barriers to entry other than gaining the product's marketing authorisation based on its safety, quality and efficacy. This leads to a vibrant multi-source market in generics, minimising the scope for shortages and delivering on average the lowest market prices in Europe - and beyond.
Unlike most of the rest of Europe, the vast majority of generic medicines in the UK are marketed by the generic name or International Non-proprietary Name (INN). GPs are trained at medical school to write prescriptions by INN except where there is a clinical reason for doing otherwise. Primary Care Trusts (PCTs) also encourage their GPs to prescribe generically to benefit from the savings due to the lower costs of generics.
The reimbursement price - i.e., the price paid by the NHS to the community pharmacist' of the majority of generics changes quarterly. It is set by the Department of Health (DH) and is based on quarterly returns to the Department by all generic manufacturers showing the volumes sold of each product and the net revenues gained. DH sets the reimbursement price according to a formula that manages the profit made by pharmacists due to dispensing generic medicines.
In this way, GPs have incentives to prescribe generics and pharmacists have incentives to dispense them, whilst prices are based on competition with the minimum of government interference. This lack of bureaucracy ensures that the NHS benefits from high levels of savings due to early generic entry to the market. Other EU member states' more bureaucratic systems achieve lower savings and then only after considerable delay.