Generic Drugs Have Major Market Share By Volume, but not by Total Sales

U.S. patent policy typically grants drug manufacturers the normal 20 years’ protection from the date of the original patent (which is most likely filed very early in the research process), plus a period of 14 years after FDA approval. Once the patent on an existing drug expires, competing drug companies may be allowed to market cheaper generic versions which are nearly identical chemical compounds. (However, the FDA must approve the generic version, which may require several years of effort and a substantial financial investment on the part of the generic manufacturer. Also, the original owner of a drug patent may attempt to extend protection of the drug for many years by continually filing additional patents based on newer formats, delivery methods or uses for a drug. Drug owners that sell in large quantities are willing to go to extensive efforts to try to maintain at least some level of patent protection.)

Generic prescriptions as a percentage of all U.S. pharmaceutical sales rose from 49% by volume in 2000 to 90% in 2018 (but accounted for a significantly lower percentage of total drug expenditures), according to PhRMA. The percentage remained around 90% as of late 2021, per the U.S. Food & Drug Administration (FDA). Some drugs sell in such low volume that they aren’t taken up by generic manufacturers even though they have gone off-patent.

SPOTLIGHT: Samsung Biologics’s Super Plant

Samsung Biologics Co., the drug manufacturing unit of the Samsung Group, is building a $2 billion, 2.56 million square foot manufacturing plant in Incheon, South Korea. Called Bio Campus I, the site is comprised of four manufacturing plants. The latest unit of the campus, Plant 4, is the world’s largest biopharmaceutical manufacturing facility, which saw partial operations beginning in late 2022 (ahead of schedule) and full operations commencing in June 2023. Plant 4’s capacity is 240,000 liters. Total production capacity for all of Bio Campus 1 is 604,000 liters. Samsung recently acquired additional land to build Bio Campus II which will include Plants 5 through 8 and an Open Innovation Center.

Retailers including Walmart, Target, Walgreens and Publix offer a large number of generic drugs for a flat monthly fee. Walmart offers 90-day supplies of hundreds of generic drugs for $10 each, and 30-day supplies for $4, in an effort to undercut mail-order pharmacy businesses while providing a high-value service to the public that brings more consumers into Walmart drug departments.

Some major drug companies are trying to get in on the generic business by quietly creating their own generic drug subsidiaries. Pfizer, for example, has a division called Greenstone, LLC, which produces generic versions of its blockbuster drugs including Zoloft, an antidepressant that brought in upwards of $2 billion in 2006 sales, at which time its patent expired.

In mid-2018, Amazon acquired online pharmacy PillPack, Inc. for $1 billion, which enabled the launch of Amazon Pharmacy in November 2020. It ships insulin, asthma inhalers and many other common generic or branded drugs, with the exception of most opioids which have a higher risk of theft and fraud. Amazon accepts most health insurance and offers discounts to Prime customers. The site put the online retail giant in direct competition with CVS Health Corp., Walgreens Boots Alliance, Inc. and Rite Aid Corp.

In January 2022, entrepreneur Mark Cuban launched a low-cost pharmacy and web site, Mark Cuban Cost Plus Drug Company (costplusdrugs.com), that sells commonly used generic drugs directly to consumers at transparent fixed rates. The business model circumvents pharmacy benefit managers (PBM’s) and drug manufacturers whose practice is to charge high list prices with rebates going to the PBMs. (A portion of these rebates typically is given back to insurance companies, but doesn’t provide any direct relief to consumer’s out-of-pocket drug costs.) In 2022, the drug manufacturing arm of Johnson & Johnson reported paying $39 billion in rebates, discounts and fees to a variety of payers including government programs, distributors and some individuals.

Cuban’s pharmacy has the potential to save Medicare’s prescription drug program alone as much as $3.6 billion per year, according to researchers at Harvard Medical School. The generics focus of the pharmacy is particularly applicable to Medicare, since about 88% of the agency’s prescriptions were generic in 2020, but they accounted for only 19% of overall drug spending.

In August 2023, major health insurer Blue Shield of California announced plans to sever its dealings with CVS Health’s Caremark, a pharmacy benefits manager. Instead, Blue Shield intends to rely on Amazon for at-home drug delivery, Mark Cuban Cost Plus Drug Company for low cost medications and Abarca for processing drug claims. The stakes here are extremely high, as both consumers and their insurers are anxious to lower the overall cost of drugs, while the federal government is pressuring the entire drug supply chain to rein-in prices.

There’s a wild card where generic drugs are concerned that has some doctors and patients wary of choosing generics over brand-name drugs. The FDA has a broad definition of bioequivalence, stating that a generic’s maximum concentration of active ingredient in the blood must not fall more than 20% below or 25% above that of the brand-name drug equivalent. The result is a significant potential difference in the generic version when compared to the original, brand-name drug. Also, while the generic must contain the same active ingredient as the original, additional ingredients (called “excipients”) can be different and may be of lower quality in a generic. Concern is greatest over generic versions of “narrow therapeutic index drugs” which require precise dosing because even minor variations can cause life threatening complications.

India is the world’s largest exporter of generics, fueled by hundreds of manufacturing labs. Major manufacturers include Cipla, Sun Pharmaceutical, Lupin and Dr. Reddy’s. About 1 billion prescriptions written by U.S. doctors each year are fulfilled with drugs made in India.

A number of U.S. hospital chains are hoping to get in on the generic drug market. In early 2018, four large hospital companies (with collectively about 300 hospitals) announced plans to work together to create a nonprofit generic drug manufacturing firm. The result, called Civica Rx, delivered its first drug, an antibiotic, in late 2019, enabling greater control of the supply chain for the hospitals, and lower prices for patients. By mid-2022, Civica Rx offered 60 different generic drugs, potentially saving hospitals and patients significant amounts of money each year.

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