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Generic Drug Producers Have $45 Billion Opportunity

Generic drug producers have been handed windfall sales over the past decade. According to a new report from Morgan Stanley on the state of the generic drug industry published this week, $160 billion to $170 billion of branded sales have lost patent protection over the last ten years, and generic producers have been quick to take advantage. 

This trend is expected to continue with roughly $80 billion in branded sales projected to lose patent protection over the next five years. On top of this, Morgan’s proprietary bottom-up analysis of the top 200 branded products in the US identifies additional generic opportunities from $23 billion of branded sales of complex products with limited patient protection.


Generic Drug Producers Have $45 Billion Opportunity
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Together, accounting for the price deflation generic producers usually bring to branded products, these two opportunities translate into a $20 billion opportunity in new generics, implying 8% to 9% gross industry compound annual growth from the current $45 billion size during the next five years.

What’s more, the branded products coming off patent during the next few years are, according to Morgan’s proprietary research, technically more complex and therefore present higher margin opportunities versus history. As a result, the potential profit pool from the additional $20 billion in sales could be in the region of $8 billion to $12 billion.

Generic Drug Producers Have $45 Billion Opportunity

Morgan estimates that the overall size of the US pharmaceutical market is $330 billion to $340 billion of which $170 billion to $175 billion of branded drugs, $100 billion are biologics, and $70 billion are generic products. Excluding rebates and discounts, Morgan’s analysts estimate the generic market size at manufacturer-level pricing to be roughly $45 billion in sales value.

Even though the United States is one of the largest pharmaceutical markets in the world, Morgan’s research concludes that US domestic generic producers will lose out over the next few years to Indian companies.

In the report on the industry, the bank’s pharmaceutical analysts write that they believe Indian companies could get a 25% to 30% market share incremental opportunities coming up over the next few years, based on their broad coverage of new opportunities and product-by-product success in the recent past. This compares well with their current US volume share of approximately 25%. This 30% to 35% incremental market share should translate into $5 billion to $6 billion of incremental sales (at manufacturer-level pricing), from the current $7 billion US sales (11% to 13% five-year CAGR).

As Indian companies are expected to chalk up double-digit generic sales growth, US generic players may struggle. Morgan is forecasting a 4% to 6% 2016 to 2020 net CAGR of the US generic players with high-single-digit to low-double-digit growth from new launches offset by low-to-mid single digit pricing erosion. European generic businesses could lose a modest market share to Indian generic players but still expected to generate sales CAGR of 5% to 6% between 2015 and 2020.

morgan-generics-1 Generic Drug Producers Have $45 Billion Opportunity