At yesterday’s AAM annual meeting, David Gaugh, AAM’s interim President and CEO, discussed the unprecedented events that threaten the sustainability of today’s generic drug and biosimilar industry. In his keynote address, he addressed how the generic drug and biosimilar industry is being stressed by economic issues, PBMs, government programs, and other events out of its control.
Here are some of the points he outlined:
- The risk of drug shortages continues due to supply chain problems, compliance issues, and quality concerns.
- The generic industry is highly competitive and has low margins that quickly drive a race to the bottom in price.
- About thirty percent of generics are not launched after approval because, once approved, there is no more room in the market.
- There is tremendous financial pressure on every firm’s portfolio.
- 3,000 generic drug products have been withdrawn from the market over the last ten years.
- The core economics of the industry must be fixed to sustain the market.
- The Medicare rebate provisions for generic drugs place additional pressure on the industry.
- Medicaid policies currently reward the use of brand-name drugs over the use of generics, which in itself is counterintuitive. In addition, the contracts and associated rebates prevent early access to newly approved generics.
- PBMs favor brand-name drugs over generics and biosimilars due, in part, to the price spread.
- PBMs are essentially blocking access to new generics and biosimilars.
- Many firms are actually losing money on some of their portfolio products but, in the interest of access, continue to manufacture and distribute them.
David indicated that the AAM just released a white paper (here) that further discusses the sustainability issue in more detail. While I never really liked the economics courses I took in college, I do remember one of my professors saying that if you are losing five cents on a unit, you can’t make it up in volume!