Low prices are only part of the generics story

Those of us who work in the generic medicines industry have always believed that manufacturers’ selling prices in the UK were amongst the lowest in Europe, if not the lowest. Various studies, based on reimbursement prices, have supported this view. Now we know that they are the lowest in Europe thanks to a report by respected independent economics consultancy Oxera. 

Oxera’s report “The Supply of Generic Medicines in the UK” published on June, 26th tells us this, but it also tells us so much more. Based on an extensive data collection and analysis, and interviews with senior industry managers in the UK, it demonstrates:

• How the UK achieves such low prices.
• Why the UK is attractive to generic medicines manufacturers, notwithstanding its low prices.
• How the UK’s market responds to competitive pressures in a self-correcting way to ensure value for money and security of supply. 
• That there is a pricing level beyond which the industry cannot go, if the supply of medicines to patients is to be secured. 
• The risks to continued supply of high quality, low cost medicines should the Government or regulators intervene in the pricing of individual products. 
• When and how intervention could take place to minimise risks to supply. 

It’s critical to view all of these features together. It’s too simplistic just to say that open market competition achieves the lowest prices in Europe. The same freedom of pricing allows the market to self-correct when there are shocks due to cost changes or shortages of raw materials. High prices encourage other suppliers to enter the market, creating increased competition, leading to lower prices. 

The system allows manufacturers to increase prices or reduce their exposure to an unprofitable market by supplying lower volumes, in effect leaving supply to other manufacturers charging a lower price. But that some flexibility works in reverse to allow manufacturers who have reduced supply to ramp up again quickly to meet shortages or when prices increase. 

The report shows that, whilst you might expect the UK to be an unattractive market because of its low prices, it is attractive because of these flexibilities or low regulatory barriers, including that the harmonised marketing authorisation application process provides a consistent process for licensing suppliers across EU member states, and facilitates entry within a short period of time.

So whilst it’s attractive just to focus on price levels in the UK compared with other EU member states, it’s important to understand the reasons for them: economies of scale, low regulatory barriers, flexibility. It is also critical to understand that intervention of the Government on some parts of this ecosystem, or in respect of some products, can undermine the benefits that we all—payer, patient, industry—derive for the current arrangements. 

Warwick Smith
Director General of the BGMA.