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UK Generic medicines market functioning well and delivering significant savings - Oxera

  • Analysis concludes the market for the supply of generic medicines in the UK is functioning well and delivering significant price reductions.
  • Average actual manufacturer selling prices for readily available generics are typically around half the Drug Tariff or reimbursement price - the cost that the NHS pays for a medicine.
  • On average, generic selling prices over a four-year period after entry are 70–90% lower vs the originator.
  • A comparison of manufacturer actual selling prices across five European countries with mature markets suggests that prices of generic medicines in the UK are generally lower - often by a large amount

A new independent report by economics consultancy Oxera has underlined the critical importance of the UK generic medicines sector and how, via free competition, it provides sustained and significant savings to the NHS creating greater patient access.

The UK pharmaceutical industry, and in particular the generic medicines segment within it, has grown significantly in recent years. NHS prescription data shows that the number of generic prescriptions fulfilled by community pharmacy in England has doubled between 2005 and 2017 from 415m to 824m. 

This represents an increase in the share of generically dispensed prescriptions from 59% to 75% and compares very favourably to the OECD average of 52%.  Despite accounting for the vast majority of medicines being prescribed, generics accounted for only 28% of NHS spending on drugs at reimbursement prices which are approximately double those charged by manufacturers.  

The British Generic Manufacturers Association (BGMA) - the trade association representing 85% of generic medicines supply in the UK - commissioned Oxera to undertake an independent study to assess the effectiveness of the generic medicines market in the UK in terms of delivering benefits for patients and the NHS.

The in-depth study used a mixture of qualitative interviews and quantitative data analysis. For the first time, the report compared actual sales prices charged manufacturers - the price before margins for pharmacy, wholesale and distribution costs have been added. The analysis showed that average actual manufacturer selling prices for readily available generics are typically around half the Drug Tariff or reimbursement price - the cost that the NHS pays for a medicine. 

The Oxera analysis, which focused on primary care and sales of medicines through community pharmacies, concluded that the market for the supply of generic medicines in the UK is functioning well and delivering significant price reductions following loss of patent exclusivity from originators.

Other conclusions included:

  • The actual selling prices charged by generic manufacturers in the UK are significantly lower than the price of the originator’s branded product in the UK before the loss of exclusivity. On average across a number of products, generic prices over a four-year period after entry are 70–90% lower.
  • While generic prices can sometimes increase many years after entry, in the long-run the price is still around 80% lower than the pre-entry price of the relevant branded product.
  • While prices sometimes increase, many of these reverse over time, indicating a well-functioning market. In particular, in a majority of cases where there was a significant price increase over a short time, these had largely dissipated within 12 months. The extent of the reversal was relatively lower, and slower, for price increases that occurred over a long period of time.  
  • A comparison of prices across six comparable countries suggests that prices of generic medicines in the UK are generally lower - often by a large amount, up to 4.5 times more expensive than in the UK.

Report author Dr Avantika Chowdhury, a partner with Oxera said: “Overall, our assessment of the available evidence indicates that the regulatory and market mechanisms that are currently in place for the supply of generic medicines in the UK are fit for purpose and operate well in general, with prices comparing favourably to those in other countries of a similar nature.

“The UK regulatory systems provide strong incentives to all key players to encourage generic medicines use, in particular doctors and pharmacies who are incentivised to dispense the lowest price product. This in turn creates strong incentives for generic manufacturers to offer low prices for securing volume. This pressure on generic prices is supported by the regular revisions (typically, reductions) of the Drug Tariff price which is used to reimburse pharmacists. 

“The above assessment is supported by the cross-country comparison which indicates that the higher prices of some other European countries relative to the UK is likely to be driven, to a large extent, by the relevant national regulations.  

“Notwithstanding, specific products may need a higher level of intervention to ensure that prices are fair and reasonable and patients are getting the value of generic medicines. In such cases, it is necessary to consider the nature of intervention in the context of the specific product features to avoid potential unintended consequences.”

The report also analysed some of the strategic and commercial decisions made by manufacturers ahead of generic launch which includes commercial expectations; factors specific to an individual molecule as well as the cost of research and development.

The report also concluded that other factors such as portfolio fit can also be important depending on the business model of the company in question. For example, large companies producing a wide portfolio of products will attach importance to the fit of new product with existing portfolio even if stand-alone profitability is low.

Other issues included:

  • Geographic considerations can play a role in the decision to enter a particular country, with overall market size and profitability across multiple territories becoming key factors. In this context, despite the comparatively low prices, the UK is seen as an attractive market due to its size and low regulatory barriers.
  • Once generic entry has occurred, the price of a product is typically driven by supply and demand forces, and individual suppliers have little influence. In some instances, this can mean that prices fall below the level where production is profitable. 
  • Importantly, manufacturers have the ability to change their supply and pricing relatively easily to react to changes in market conditions. Manufacturers generally avoid exiting the market entirely in the short term, instead increasing or decreasing production depending on market conditions. 
  • This creates a self-correcting mechanism whereby short-term price increases are often met with additional supply and therefore a consequent price decrease.

Warwick Smith, Director General of the British Generic Manufacturers Association, said: “This study validates the effectiveness of the UK generics market which has for many years delivered significant price reductions to the NHS and widened patient access following loss of patent exclusivity. 

“Manufacturers selling prices are among the lowest in Europe and this report demonstrates the robustness of having a competitive market model with multiple suppliers and the ability to respond quickly to supply and demand conditions.

“It also shows the long-term effectiveness of the market and that even in circumstances where prices do rise, they are largely dissipated by increased supply within a relatively short time frame.”
The report examines where intervention in the competitive market may be appropriate and the factors which need to be considered.

Principal areas for focus included:

  • Existing competition: This includes within the same molecule as well as availability of alternative molecules that are therapeutic alternatives. Even if existing competition is limited, a significant price increase may not always warrant intervention as a price rise provides the economic incentives for additional entry by new or inactive suppliers.
  • Costs: The first step for assessing fair and reasonable prices under established approaches typically involves as analysis of cost drivers such as API and other aspects such as complexities in production processes, and associated risks. 
  • Portfolio: The pricing strategy of different generic suppliers vary according to their size, business model and geographic considerations. While some manufacturers use individual product pricing, many consider the profitability of the portfolio (or a subset of portfolio) overall. Therefore, in assessing whether the price of a particular product is too high, it is important to consider the context of any price.
  • Context: It is also important to reflect on the originator price pre-loss of exclusivity. If a generic medicine’s price increases significantly from a very low base, it might still be a very small percentage of what the originator price was prior to generic entry.
  • Access: The overall value delivered to patients is also an important consideration. While price is an important indicator of competition and market functioning, a key aspect in this sector is access of medicines. This is particularly the case for medicines with complexities in production or a small market size, where the incentives for widespread generic entry may be limited by these natural characteristics of the product.  

For further information contact Jeremy Durrant on 02078667883 / 07792918648 or email