Cost cutting measures and patent expirations to propel the European generics and biogenerics market

Oct 19 2004

The upcoming spate of patent expirations bodes well for the European generics market. The growing loss of patent protection on blockbuster brands over the next few years, coupled with the rising need to contain spiralling healthcare costs, is set to provide a fillip to market expansion.

Recent analysis by Frost & Sullivan reveals that the European generics and biogenerics market is estimated to grow from USD 10.9 billion in 2003 to USD 21.2 billion in 2010.

As most European governments strive to reimburse part or all of the cost of prescription medicines, price controls have become integral to containing excess spending. It is estimated that the use of generic products in Europe has yielded an annual cost savings of nearly USD 25 billion over branded medications in 2003.

"The increasing desire to contain healthcare spending is likely to be one of the major factors spurring the uptake of these cheaper options," notes Dhiraj Ajmani, Senior Analyst with Frost & Sullivan.

The Netherlands and the United Kingdom have well-established markets for drugs sold under their generic names. In France, generics have begun to take a firmer hold on the pharmaceuticals market, while in Italy, the development of the generics market is progressing more slowly. Overall, the use of generics has been strongest in Germany and the United Kingdom.

"Generics are preferred mainly because of their 20 to 80 per cent price differential from the patent-expired brand," says Mr. Ajmani. "Removing generics from the health economics equation is likely to render the EU healthcare systems financially unsustainable."

Government healthcare providers have played a pivotal role in spearheading this initiative. Increasingly, they have begun to adopt generics either as a step therapy (sequential use of least expensive medications before prescribing the more expensive drugs), or as a formulary alternative for which participants make the lowest co-payment.

However, even while the generics and biogenerics market demonstrates great potential, unclear regulatory processes and patent issues are likely to pose a major challenge. This difficulty is likely to be more prevalent in the case of biogenerics that are much more complex formulations compared to the generics.

With Western Europe having recently clarified its regulatory approval process for biogenerics, the European Union has become the first Western market to formally clarify its approval process for biogeneric products. In June 2003, the European Union passed a legislation allowing companies to apply for permission to sell generic versions of genetically engineered drugs. As regulators seek to fine-tune the guidelines, generic biologics are likely to be evaluated on an individual basis.

The new EU legislation that is expected to come to force in 2005 is also likely to provide a boost to generic drug production. With an ever-growing number of structural reforms in the pipeline, it is likely that regulatory procedures will be streamlined to speed up the process of approving new generics.

While these are positive signs, challenges still remain. The widely accepted perception that branded products are much more efficacious than generic and biogeneric products is one factor that is likely to restrain overall market growth. This notion - particularly prevalent in governmental and unionised populations - often results in a "brand name shift", wherein consumers simply switch from one brand-name product to another instead of utilising an identical generic drug.

However, sometimes the generic drug is even preferred over the original. For instance, the generic Paracetamol is much more popular than the branded Panadol for pain relief. On the whole, generic drugs tend to enjoy better brand awareness among European citizens in the self-medication area or retail sector where they need to pay for the drugs themselves.