The generic drug market in the United States is characterized by significant price volatility and shortages, driven by the structure of the market and the incentives for manufacturers. To address these issues, several market-based proposals have been put forth to optimize generic drug cost and availability. These strategies aim to create a more competitive and stable market, ensuring that patients have access to affordable medications.
Table of Contents
Restricting Market Entry
One approach to stabilize the market is to restrict market entry by limiting the number of manufacturers for certain drugs. This strategy can bring greater transparency to the market, attracting more manufacturers to remain as suppliers. The Veterans Health Administration, with its existing supply-chain infrastructure and ability to negotiate with manufacturers, could use long-term contracts to create a long-term stockpile of common generic medications, moderating market prices and addressing supply shortages.
Long-term Contracting
Another strategy involves long-term contracting between manufacturers and distributors. This approach can help create a stable market by providing a guaranteed demand for products and reducing the risk of price fluctuations. However, there is a risk of unused inventory if the standard of care changes rapidly, leaving distributors with large financial losses.
Creating a Futures Market
A more innovative approach is to establish a futures market for generic drugs. This would allow manufacturers to predict demand and manage risk by trading contracts for future deliveries. The creation of such a market could increase transparency and stability in the market, but it also carries risks due to speculation and the complexity of regulating the financial instruments involved.
Strategic Scaling and Portfolio Management
Pharmaceutical companies should focus on strategic scaling and portfolio management to drive share and margin. This involves combining complementary assets, filling gaps in portfolios, and making targeted investments to own a significant share of the market. By doing so, companies can ensure long-term viability and stability in the face of market fluctuations.
FDA Guidance and Competitive Generic Therapy
The U.S. Food and Drug Administration (FDA) has also played a crucial role in promoting generic competition. The agency has clarified its generic drug approval process and introduced the Competitive Generic Therapy (CGT) designation to encourage the development of generic versions of brand-name drugs. This designation provides 180 days of market exclusivity, allowing manufacturers to profit from their products without competition during this period.
Conclusion
Stabilizing the generic drug market requires a multifaceted approach that addresses the underlying economic model. By implementing market-based proposals, such as restricting market entry, long-term contracting, and creating a futures market, pharmaceutical companies can create a more competitive and stable market. Additionally, strategic scaling and portfolio management, as well as FDA guidance and competitive generic therapy, are essential in ensuring that patients have access to affordable medications.
“By creating a more competitive and stable market, we can ensure that patients have access to affordable medications and that the pharmaceutical industry remains viable and innovative.” — Kevin A. Schulman, MD
References
- Schulman, K. A. (2015, October 29). Options to Promote Competitive Generics Markets in the United States. JAMA, 314(16), 1645-1652. doi:10.1001/jama.2015.13498
- KPMG. (2022). Maximizing the Potential of Your Generic Portfolio Strategy. Retrieved from https://kpmg.com/kpmg-us/content/dam/kpmg/pdf/2022/maximising-potential-of-your-generic-portfolio-strategy.pdf
- The Regulatory Review. (2020, April 22). Encouraging Competition Through Generic Drugs. Retrieved from https://www.theregreview.org/2020/04/22/fritz-encouraging-competition-generic-drugs/
- FDA. (n.d.). Competitive Generic Therapy Approvals. Retrieved from https://www.fda.gov/drugs/generic-drugs/competitive-generic-therapy-approvals
- FDA. (n.d.). FDA Drug Competition Action Plan. Retrieved from https://www.fda.gov/drugs/guidance-compliance-regulatory-information/fda-drug-competition-action-plan
