A pharmacist friend of mine told me that he has seen a 180 degree change in the way patients think about generics over the last decade. He said he used to have to fight like crazy to get his customers to take generics, but today he needs to fight to get them to take brand name drugs. I think three things have contributed to this change. The first is the tiered co-pay concept that forces the patient to make a personal financial commitment when taking a drug on tier 2 or 3. Secondly, the Walmart $4 generic campaign has made taking generics totally mainstream and acceptable. Finally, the huge influence the highly trusted pharmacists have had on the switch, driven by their incentives and made easier by changing regulations.
If the branded pharmaceutical companies are going to compete with generics an entirely different approach may be needed. It seems so many companies sort of ignore generics and define their competition as the “branded” products in a category. The problem with this thinking is, now that generics account for 80% of all prescriptions, the remaining market is small and becoming smaller by the month, as we are living through the “patent cliff” era. If you want a quick reality shock look at the number of prescriptions written last month for various products and see where the branded products fall on the list. I’ll give you a clue. You need to look at a long list. In order to grow the branded part of the market, the industry needs to get back a portion of the overall market share and that must come from generics.
Take some time to really understand the generic world. Look at at the GPhA website (http://www.gphaonline.org) and you will quickly see that they truly believe they are on the right side of all the issues. They say they are saving consumers $3 billion dollars every week. They point out all the frivolous lawsuits challenging them and how few actually succeed. They show government studies demonstrating the value of generics, and it goes on and on. Branded pharmaceutical marketers need to fully understand what is going on here and not minimize in any way the points being made.
Branded pharmaceuticals really have only two ways to compete with generics. First, we can innovate like crazy and market drugs where there are no possible generic alternatives. Secondly, where there are generic possibilities in a category there must be overwhelming benefit/cost advantage tipping in the favor of the branded products. Getting the market back will not happen by accident. Major change is needed in both the R&D and Marketing (i.e. Pricing) parts of the business. In so many ways the business model needs to be completely reinvented if the branded companies are going to survive and thrive again.
The reason I even began thinking of this topic is the attached article sent to me by a friend last week after reading my blog on “Numbers Matter” where I discussed the economics of healthcare in the US. The Forbes piece points out the significant vulnerability the industry faces because of the reliance on price increases. As prescriptions go down, the knee jerk reaction is to increase prices a lot to preserve as much revenue as possible. We raise prices only because we can, with no other reason than we want to make more money. In addition to this, not being a sustainable business practice significantly hurts the image of our industry. It really is difficult to explain why huge price increases are needed in times of no inflation and no growth in personal income for most consumers. In other industries the older a product becomes, the lower the price goes. Why is it different in our industry? Oh, I know the arguments, but quite frankly they don’t seem to be working in a much more transparent world.
The generic companies clearly play a valuable role in the delivery of healthcare. My concern is that they now have way too big a share of the overall business, not because of what they are doing, but because the branded segment has not implemented the business practices that would allow them to secure their own fair share. My real concern is that I see patients missing out on some marginally better drugs because the price differences are so big that the benefits are not worth the cost. This leads to low usage, low return on research, cost cutting and less research, setting off the vicious cycle we are so concerned about. We can do better. Our industry is all about innovation and improving the health of everyone, both in the US and around the world. New and broader thinking is needed to prevent this market share exodus from becoming the new reality.