Generic prescribing is likely to continue to increase significantly in the UK over the next few years, according to the British Generic Manufacturers Association (BGMA), not least because new technology allows doctors to prescribe generically at the touch of a button. Generics are highly appreciated as providing cost-effective healthcare; the Government offers strong incentives to promote generic prescribing and trainee doctors are taught to prescribe generically, even for products still under patent.

Because generics trade within mini-commodity markets in the UK, and at comparatively low prices, competition in the generics market is fierce, especially as pharmacists base purchasing decisions predominantly on the price of alternative supplies of medicines.

Meanwhile, research organisation Datamonitor believes that: “There is still room for growth in the more mature generics markets, with governments examining methods of increasing generic usage even further. However, pricing pressures may result in this growth not being translated into positive returns for the generics industry. Competition in the generics market is becoming increasingly intense, with low-cost producers expanding globally and branded pharma becoming involved through subsidiaries or via authorised generic agreements. The wave of consolidation that swept through the generics market has been spurred on by this competition and is unlikely to end any time soon.”

The Pharmaceutical Services Negotiating Committee (PSNC) says: “It is important to recognise that pharmacies are required by their NHS terms of service to dispense all prescribed medicines with reasonable promptness. They therefore need to hold in stock many thousands of medicines and the margins available vary, and there are even situations where the reimbursement price is less than the cost to the pharmacy.

“Over the last year, £300 million has been removed from generic medicines purchase profits by reducing Drug Tariff generics reimbursement prices via the Category M system and this has been used by primary care trusts to fund some aspects of the contract payments. The contract agreement allows for £500 million to remain in purchase profits, split between generics and other purchases; this is funding that is part of the agreed £1,766 billion sum which was based on the cost of providing the pharmacy service and a return on investment.

“We are jointly [in summer 2006] carrying out a definitive study with the Department of Health (DH) of invoices from independent contractors, which will provide an assessment of the purchase profits available to them. PSNC is working with the DH on contract funding negotiations for 2006/07. The negotiations are based on the formula set out in the new contract book, including prescription volume growth, general inflation as well as salary inflation, additional regulatory costs and an efficiency factor.”

Pricing

The Category M scheme for deciding the NHS reimbursement prices of generic medicines in England and Wales has been fixed for five years and is supplemented by scheme W, which takes into account wholesalers’ prices. Warwick Smith, BGMA Director, says that reimbursement is and will remain the big issue for pharmacists when it comes to generics. “As the reimbursement price is now based on quarterly net revenue returns from manufacturers – according to the Category M scheme – we are seeing significant changes in the market,” he says. “Discounting continues and so the reimbursement price fluctuates, causing some confusion for pharmacists, particularly independents.

“With some new manufacturers entering the market and consolidation of other players – Alpharma becoming part of the Actavis Group, for example – generics remains a very competitive market, and pharmacists are still chasing the lowest prices.

Despite this, and the changes to reimbursement, they don’t seem to be reducing any of the ranges that they are stocking. “However, pharmacy customers are demanding that manufacturers distinguish themselves in ways other than price – for example, through service and after-sales care – and our members are working hard to make this happen. “We do recognise that pharmacy is our customer and we see ourselves on the same side – your side – and as part of the sale supply chain. We are not just here for our members; we are here for pharmacy too, and I would like to encourage pharmacists to contact us with any questions they may have. If we can’t answer them ourselves, we can usually find someone who will.”

Buying groups

As a buying group for independent pharmacists, Cambrian Alliance was formed in 2000 by six community pharmacists who joined forces to secure better terms from suppliers in order to compete effectively with the larger multiples. The group has grown rapidly as independent pharmacists across England and Wales have realised the benefits membership provides.

Mark Griffiths, Cambrian Alliance Chairman, has day-to-day experience of the generics issues that concern community pharmacists. He says: “Community pharmacists are concerned that the Government will look to claw back even more money from purchase profits through the amended Drugs Tariff, e.g. by moving more generic medicines into Category M. There are also concerns regarding changes in reimbursement rates, as these could leave pharmacists out of pocket if they hold stocks of products which are
suddenly devalued.”

Because of this, he has seen a change in pharmacy purchasing patterns. Pharmacists are still shopping around for the cheapest generics but, adds Mark: “More and more independent pharmacists are turning to buying groups such as Cambrian Alliance to help them make the best generics purchasing choices for their pharmacy.

“Joining a buying group should enable pharmacists to obtain better prices consistently, while saving them a considerable amount of time which they previously spent looking through supplier price lists to find the best deal. It also enables them to choose suppliers that fit the profile of their business so for example they can decide whether to always select the cheapest supplier, to pay more for twice-daily deliveries or to pay a premium for a specific brand. Cambrian Alliance provides its members with a monthly supplier price guide, enabling them to compare the latest prices offered by a range of well-known suppliers before making their choice.”
Despite the price cuts and consequent squeeze on margins, the generics market is growing strongly in volume terms and accounts for more than 50 per cent of the number of packs dispensed in a pharmacy.

Steve Dunn, Group Managing Director at AAH Pharmaceuticals, is optimistic that this will go on, explaining: “We envisage this strong growth will continue given the Government’s desire to continue to drive generic prescribing and reduce the cost pressures on drug budget holders. “Generics prices in the UK are cheaper than anywhere else in Europe and there is considerable over-supply in many categories. Generics manufacturers must surely eye government intervention with more than a little trepidation, as any further pressure to drive down the tariff price will only intensify the commodity nature of buying within the marketplace. “Legislators must realise that if the generic market becomes commercially unattractive then all stakeholders will be forced to reconsider their participation and may exit in whole or part, which is surely not the desired intention.”

So are pharmacists sticking with one or two wholesalers who give good all-round deals? Steve believes price is key, adding: “AAH is the largest seller of generics in the marketplace and our market share is increasing." This suggests that pharmacists are increasingly turning to wholesalers who can offer good all-round prices – they do not have time to continually shop around in the hope of finding small cost savings on one or two products when they have so many other demands on their time. Short-liners appear to have lost a share of the marketplace, possibly as a result of pharmacists realising it is counter-productive to have multiple suppliers for the same products.

“Despite the price cuts and resulting impact on our profitability, our strategy at AAH is to continue to grow this position through a continued focus on our proposition and offer in the generics marketplace, both to our customers and our manufacturer partners.”

As the use of generics is set to increase even more, pharmacists need to use all the resources available to them to get the best prices and supply arrangements, despite the ever-changing market.