Ask Accord: Why do generic medicine prices sometimes spike?
In this short new series, Accord UK review topical questions often asked by pharmacists about the generic and biosimilar industry and provide their perspective. The first question ‘Why do generic medicine prices sometimes spike?’is answered by Peter Kelly, Managing Director, Accord UK.
The content of this article has been written by Accord Healthcare
Q. Why do generic medicine prices sometimes spike?
A. In many industries supply and demand are major influencers on price and generic pharmaceutical medicines are not immune to this. Due to the freedom of pricing that operates in the United Kingdom, combined with being one of the higher prescribers of generic medicine, often means that there are a number of competitors for any given medicine at any one time.(1) With some clinical exceptions, pharmacists are able to interchange medicines, encouraging pharmaceutical manufacturers to compete and this often leads to the UK having some of the lowest prices in Europe.(1) In fact, on average the cost of a 28-day supply of generic medicines supplied by Accord to the NHS is less than £1.15 – that’s less than a cup of high street coffee.(2)
So why do prices rise? The answer is a myriad of potential factors. Sometimes when a price goes too low, it can no longer be viable for manufacturers to produce the medicine and competition reduces. This can ignite a catalyst causing the cost to increase, attracting manufacturers back until the medicine price stabilises again.
Similarly, in the case of shortages and interruptions in supply, often caused by logistical challenges of transporting raw materials across countries, the laws of economics usually take over and prices will rise.
Other inflationary factors in either raw materials, logistics or supply shocks due to Good Manufacturing Practice (GMP) issues can also play a part. Due to the fact the UK market can react, and prices can change quickly means very often supply is maintained and whilst prices may rise in the short term, they generally always fall back down and reconcile. This ‘virtuous cycle’ was explained in a report by independent economics consultancy Oxera who were commissioned by the British Generics Medicines Association (BGMA) to prepare a report on the supply of generic medicines in the UK to determine whether the existing market and regulatory mechanisms were fit for purpose.(1)
Their analysis showed that in general that when a generic medicine first comes on the market, the generic price drops by 70% within the first six months from the originator, falling to 80-90% lower over a four-year period.(1)
However, in our experience the drop to 90% usually happens a few weeks after the initial 70% drop.
It is a pattern that we can see when we analyse the pricing trends of the last few years. Despite major events such the Falsified Medicines Directive (FMD), Brexit, the Covid pandemic and incidents such as the Suez Canal blockage, price fluctuations have been short-lived with temporary spikes resolving within a few months to reflect a well-supplied market.
Figure 1: Taken from Accord Partner Platform: Beyond the Headlines February 2022
As mentioned, pharmacists play a central role in the equilibrium of the ‘virtuous cycle’ and keeping manufacturers on their toes when it comes to offering a competitive price. It is a system that has proven to be effective and works. However, looking at the bigger picture, sometimes when there are a few pence difference between prices it is worth taking into account environmental credentials, supply chain reliability and additional support services provided. These additional factors can have greater value, lead to longer-term sustainability, and help keep the market supply levels consistent.
If you are interested in viewing analysis of generic medicine reimbursement prices and longer-term pricing trends you can find monthly ‘Beyond the Headlines’ reports on www.accordpartnerplatform.co.uk. Here you will also find a copy of our recent White Paper ‘Generics &Biosimilars: Innovation not Imitation’, which explores and challenges perceptions of the generic medicines industry.
Peter Kelly Bio
Pete Kelly is the Managing Director for Accord UK and vice-chair of the British Generics Medicines Association (BGMA). Accord is one of the largest generic and biosimilar manufacturers in Europe, and in the UK currently supply 1 in 5 of all generic medicines. Pete has worked in the pharmaceutical industry for more than 20 years, the last 15 years being at Accord in a number of senior commercial roles. Alongside his Vice Chair role at the BGMA, Pete has previously chaired the BGMA Economic and Commercial working group.
References
1. Oxera. The supply of generic medicines in the UK. 2019.
2. Accord Healthcare. Data on File.
