Bloomberg: Why generic medications may disappear

The generic drug industry, which supplies about 86 percent of the drugs prescribed in the U.S., is in a financial crisis — causing manufactures themselves to question the viability of the business, according to Bloomberg.  

Here are four reasons why we could lose generics, according to Bloomberg.

1. The profitability of these "bread-and-butter" pills is quickly decreasing.  Since these generic medications, such as antibiotics, diabetes and blood pressure medications, don't reap in a large profit, companies are exiting important parts of this business. As Brendan O'Grady, an executive vice president at Teva Pharmaceuticals — the U.S.'s top generics supplier — said at a generic drug industry conference, "We're one of the companies that continues to make antibiotics, and we've asked ourselves for years why we continue to still make them."

2. The consortia of middle men, known as pharmacy benefit managers, are pushing the prices lower and lower. Five years ago, PMBs in the drug-delivery supply chain began to consolidate, forming alliances to increase their purchasing power. This consolidation has become so compact that just four PMBs control 90 percent of drug purchasing in the U.S. Recently, two of the four groups said they would work together to purchase generics, which would likely drop prices even lower, according to Bloomberg.

As Paul Campanelli, the CEO of Endo International, the fourth largest generics manufacturer in the U.S., told Bloomberg, "We have supported the consortiums to the point where we're discontinuing products and shutting facilities. We are not in the position to provide more price reductions."

3. Branded drugs are seeing price hikes, generics are seeing price drops. According to a deflation tracker developed by Evercore ISI Research, generic prices are falling 11 percent per year, while brand name drugs are increasing about 8 percent per year. What's more, branded drugs under patent can routinely demand big price hikes.

4. The credibility of generic drugmakers has been blemished. Certain public incidents have harmed the credibility and reputation of generic drugmakers. For example, Mylan,  the second-largest generics maker in the U.S., increased the price of the EpiPen from $50 per injection to about $300, sparking public outcry. In addition, there's an ongoing probe into generic manufacturers for alleged price-fixing during the past several years as prices shot up for specific drugs.

Regardless of whether these reasons are enough to make generics disappear, the financial struggle for generic drug manufacturers is very apparent.

Teva, who is grappling with $35 billion of debt, is cutting 14,000 jobs worldwide and consolidating six of its seven U.S. sites into one location to shore up finances. In addition, Endo Pharmaceuticals slashed its workforce in half over the past 18 months, halted the production of 85 products and moved much of its generic research and development from the U.S. to India, according to Bloomberg.

Read the full Bloomberg article here.

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