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Report Highlights Cracks in the Market for Generic Competition

Posted 02 August 2017 | By Michael Mezher 

Report Highlights Cracks in the Market for Generic Competition

As the US Food and Drug Administration (FDA) looks for ways to boost generic competition, a new working paper published by the National Bureau of Economic Research (NBER) suggests that competition among generic drugmakers slows over time, potentially leading to higher prices for older treatments and drug shortages.

The analysis, authored by Ernst Berndt and Stephen Murphy of the Massachusetts Institute of Technology, and Rena Conti from the University of Chicago, reveals that generic drug prices have risen by a statistically significant margin over time as the rate of new entrants to the market has slowed and the number of firms competing for individual drugs has fallen over time.

After 2007, the authors say the median number of competitors for an individual generic dropped from between two and three to just two through 2016, with 40% of generics being made by a sole manufacturer.

The analysis comes as recent research by the Federal Trade Commission suggests that the entrance of a third competitor for a generic drug may have a larger effect on reducing price than the second entrant.


While generic drugs account for nearly 90% of dispensed prescriptions in the US, a figure cited by both FDA and industry, generics account for only a quarter of overall prescription drug spending.

In March, Janet Woodcock, director of FDA's Center for Drug Evaluation and Research told Congress that generic drugs have saved the US nearly $1.5 trillion between 2005 and 2015.

But, while generic drugs do offer significant savings over their branded counterparts, recent reports of dramatic price increases for some generics, combined with the overarching debate over high prescription drug costs, has brought renewed attention to generic drug competition.

FDA, for its part, has focused its recent efforts on ways that drugmakers try to delay generic competition and has announced steps to prioritize the review of generics with fewer than three competitors.

NBER Analysis

Between 2004 and 2016, the authors found there were between 500 and 650 generic drug manufacturers competing in the US market.

Over the course of the study period, the number of unique molecules with generics rose from around 1,700 to 2,200, albeit at a decreasing rate over time.

For most drugs, the analysis found that competition is limited to just one or two manufacturers, and the market is relatively small, with authorized and branded generics bringing in greater revenues than other generics.

National Bureau of Economic Research

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