Deflation in generic drug prices dragged down second quarter earnings for drug wholesalers and generic manufacturers. Here’s a useful summary from The Wall Street Journal, which captures the grim marketplace realities in Falling U.S. Generic Drug Prices Hurt Manufacturers, Wholesalers. Yesterday, Mylan's earning release noted "high-single-digit erosion expected in North America."
Below, I review the state of the generic drug market. As you will see, the overall market for mature generic drugs is deflating by about 10% per year. Many generic drugs have dropped significantly in price over the past four years.
Surprisingly, the prices for about one in five generic drugs remain elevated. Scott Gottlieb, M.D., the new head of the Food and Drug Administration (FDA), has prioritized actions that should squeeze the remaining generic inflation out of the system. I expect generic drug deflation to continue—and possibly accelerate—over the next 12 to 24 months.
Payers and consumers will be the ultimate winners, but the drug channel faces significant disruption. In the meantime, let’s all hope that these price declines don’t trigger shortages if generic drug makers flee this sinking market.
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