GBI Research examines whether the US continue to dominate the global generic drug market.

The US continues to be the largest generic drugs market by revenue. Its market is primarily driven by competitive pricing, as pricing is largely decided by companies in the US that take into account market factors (including branded drug price, affordability and market demand for the drug) and government support. Recent estimates show generic drugs save the US $3 billion every week, and unbranded generic drugs accounted for over 80% of prescriptions dispensed in 2013. The low price of generic drugs results in savings for patients, payers and the healthcare system.

The US has accounted for the largest share of the global pharma market’s revenue for many years, while generic penetration rates have continued to rise to significant levels. However, the Chinese generic market is set to overtake the US’s generic market by 2017. The Chinese generic market is projected to reach $80 billion in 2017 and become the largest generic market in the world, with generic drug sales currently accounting for 65% of its pharmaceutical sales ($108 billion in 2015). Patented sales only account for 22% of pharmaceutical sales in China. Reports indicate that, in recent years, patented drug sales have been significantly hindered by government policy changes regarding reimbursement, tendering and hospital financing and sales promotion.

Emerging Economies are the Most Promising for Generic Drugs Companies?

Despite emerging economies having lower healthcare spending than developed economies, their healthcare costs are also expected to rise significantly in the near future, driven by the adoption or expansion of universal healthcare and a growing incidence of lifestyle diseases, such as obesity and diabetes, brought about by increases in disposable income and the expansion of the middle classes. Therefore, the adoption of generic drugs will very likely be seen as a strategy to control costs, given the potential savings these types of drugs can represent.

For these reasons many generic drug companies have targeted emerging economies, including Brazil, Russia, India, China, Mexico, Indonesia, Nigeria, and Turkey, as these markets are expected to exhibit a significant increase in generic volume growth.

GBI Research’s survey examined the most promising emerging markets for generic drug manufacturers. Survey respondents were asked to select the three most promising emerging markets for generic drugs in terms of revenue potential, out of the nine listed, over the next five years. The results of the survey are shown in the following figure.

As per the survey results, most of the respondents (29%) believe that China will generate the most generic drug revenue, followed by India (23% respondents). This is in agreement with the literature available. Although the US is currently dominating the generics market, emerging markets have been the most important geographical growth drivers for generics in recent years.

Indian pharmaceutical companies are already well positioned in some of the generic pharmaceutical markets of developed nations. This is due to product development skills through advanced technological capabilities, and low-cost manufacturing. Ranbaxy (now Sun Pharma) was the first Indian pharmaceutical company to recognize and take advantage of the generics market. After the acquisition by Sun Pharma, the company’s net worth in 2015 was around $4 billion. Other Indian companies that are also very active in the world’s generic drug industry are Dr. Reddy’s and Cipla. According to a recent analysis, the Indian generics market is expected to exceed $27.9 billion by 2020, from the value of $13.1 billion in 2015, registering a CAGR of 16.3%.

The Chinese generics market grew at a CAGR of 16.4% between 2006 and 2010 to $19.6 billion. In 2010, 95.3% of its prescription drug sales, by volume, were generics. As previously mentioned, the Chinese generics market is expected to reach $80 billion in 2017 and become the largest generics market in the world. Generic drug sales currently account for 65% of pharmaceutical sales, by value, in the country. China and India now account for 25% of the global generics market, and demand in these countries is expected to remain strong for the foreseeable future. China consumed roughly 19.2% of the global demand for generic active pharmaceutical ingredients (API) in 2008, making it the second-largest consumer of APIs after the US.

Survey respondents also believe Brazil will become a significant market for generic drugs in the next five years. In 2009, the Brazilian government passed the Generic Drugs Act, an initiative that was intended to reduce spending on originator branded drugs. After the act was implemented, drugs that were registered as similares, which are defined as drugs that are pharmacologically equivalent to the originator drug but without bioequivalence data, have to meet the same bioequivalence standards as generic drugs. With the new regulations, it is expected that similares will be phased out, leaving a choice between innovator drugs and generic alternatives. The Brazilian generic drugs market saw rapid expansion after the government introduced the national generic law in 1999. In the following year, 138 generic medicines were registered, and in April 2011 the total number of generic medicines exceeded 3,000, with 18,000 different dosage form.

Russia was also ranked highly in the survey (13%), as one of the most promising emerging markets for generic drug manufacturers. The Russian pharmaceutical market has grown rapidly since 2011 due to increasing consumer affluence, government initiatives and strong investment from international companies. The pharmaceutical market is dominated by generic products and foreign imports, and has not faced sanctions from the US or Europe. In turn, the Russian generic drugs market is currently dominated by branded generic drugs, and the government began introducing initiatives and reforms in 2008 that are likely to drive the market. These initiatives include efforts to reduce the share of imported drugs. In particular, generic manufacturers view anti-corruption efforts as an effective measure to reduce the share of imported medicines.

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