It’s tough all the way down the pharma food chain

Brand name drug companies like Merck and Pfizer have long been threatened by generic competition from established US and Israeli companies like Mylan and Teva, which challenge the branded companies’ patents and take almost the whole market once a drug loses its patent. The branded companies have fought back with a variety of aggressive tactics including lawsuits, authorized generics, and new formulations.

But these generic companies face other threats as well. In the last few years, leading Indian companies such as Ranbaxy and Dr. Reddy’s have entered the US market and helped drive prices down. However, the US market still looks attractive to other Indian companies and several new players such as Torrent are coming into the market. That’s caused Smith Barney analyst Madhusudan Bagree to downgrade Ranbaxy today.

The market conditions in the US continue to be tough, with pressure on both pricing [and] volume… Second-line Indian pharmaceutical companies have started to see a flurry of ANDA approvals, which will add to competition in the US.

I’ve spoken to some of those “second-line” companies and what’s interesting is what they are worried about: competition from China. The Chinese companies are focusing on serving the burgeoning domestic market now, but once supply catches up with demand they will turn their sites on the US.

So who’s benefiting from price competition in generics? Mainly retailers and wholesalers that control distribution. Payers haven’t yet caught on to how far producer prices have fallen, and retail prices have stayed relatively steady.

July 6, 2005

One thought on “It’s tough all the way down the pharma food chain”

  1. .
    So who’s benefiting from price competition in generics?

    I think you missed one, David: insurers. I sure haven’t seen any decrease in premiums, yet rx benefits (which admittedly make up a disproportionate share of premium, and claims) keep getting whittled down. The carriers are pushing generics, and proprietary formulary plans, all in an effort to push down demand for new and brand-name meds.

    The difference is pocketed somewhere.

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