Winning With The Right Marbles: The Future of Generics

By Stephen Beckman

A revolution is coming in the U.S. generics marketplace, one that players in the space ignore at their peril. This revolution has the potential to transform savvy organizations into engines of growth, and to end the decades-long “race to the bottom” that for so long has defined generics pricing. Yet this revolution also has the potential to eliminate players from the market entirely, especially those who remain stuck in outdated business models. With every passing year, the message becomes clearer: pharmaceutical companies operating in the generics space must change the way they do business — or die.

A Market Under Pressure

This warning isn’t hypothetical. According to the Association for Accessible Medicines, in the first quarter of 2024, the number of active drug shortages reached an all-time high at 323, with 84% involving generics. There are many reasons for generic drug shortages — including supply chain disruptions, quality issues, and regulatory hurdles — but one increasingly significant factor is the exit of generic manufacturers from the market. Companies are ceasing production due to unsustainable pricing models, low margins, and the financial instability of continuing to manufacture certain low-cost drugs. Meanwhile, despite making up 91% of prescriptions filled in the U.S., generics accounted for only 13% of total prescription costs in 2023. The numbers reflect a marketplace under immense strain — one where downward pricing pressure is not just squeezing margins but pushing companies to the brink.

From The Most Marbles To The Right Ones

Once upon a time, most generics companies could focus on a simple strategy: Whoever has the most marbles, wins. In this not-so-distant past, producing medications in volume and seizing market share drove business strategy — and often success — for many companies. Yet this business model led to a place where generics began functioning more and more like commodities, with prices driven ever downward by the demands of third-party payers, including pharmacy benefit managers (PBMs), wholesalers, and distributors. Faced with cutthroat competition, razor thin margins, and plummeting prices, companies that initially profited from a “most marbles” approach found themselves increasingly vulnerable to loss as new players entered the field and cheaper products flooded the market. These companies began finding themselves driven out of niches they once dominated, or even out of business.

In fact, the generics sector has seen an increasing number of company exits in recent years — a trend driven by these same unsustainable pricing models and regulatory complexities. While downward pricing pressure lowered costs for patients, it also created new problems, including drug shortages that arose when companies simply exited markets, as well as issues of product quality from remaining low-cost players. So, how can a forward-focused generics company survive, thrive, and better serve patients? Understand that success no longer depends on holding the most marbles. Success means having the right marbles, at the right times.

These might include complex products, such as specialty medications or biosimilars, that entail more up-front investment — and more risk. They might also include branded generics, developed in parallel to trusted branded offerings, or niche products designed to meet the unique needs of a small subset of patients. Whatever the case, successful organizations must continually be shifting and updating their collection of marbles, not based on volume but on value, both to the company and to patients. Leadership must excel at working two parallel tracks: maximizing the present portfolio, while simultaneously anticipating market changes that will make some marbles less valuable, and others more so. They must keep a continual eye out for innovative products with the greatest potential for sustainable “right pricing,” meaning pricing that is not based on what the middlemen are willing to negotiate, but on what patients are willing to pay for innovation, quality, and consistency.

Doing Things Differently

At Yaral Pharma, we are proud to be the U.S. generics subsidiary of IBSA (Institut Biochimique SA), a multinational pharmaceutical company focused on patient-centered innovation and real-world healthcare solutions. At the heart of IBSA’s approach is a commitment to “drugs in the best form”— a philosophy that prioritizes state-of-the-art technology, innovation, and meaningful solutions for patient needs.

IBSA’s proprietary PEARLtec™ technology is a prime example. This advanced softgel capsule system used in our thyroid medication transforms semi-liquid pharmaceutical solutions into easy-to-administer dosage forms and minimizes the use of excipients. The result is a product that supports patient tolerability and offers an option to those who may struggle with traditional tablet formulations.

Through PEARLtec and other cutting-edge delivery systems — including transdermal and topical patches — our parent company is not only enhancing drug delivery technology but also improving the patient experience.

We are also using new avenues to reach patients with information about products. Marketing for branded products is often focused on reaching physicians and/or through direct-to-consumer advertising. These channels are expensive and don’t make sense in the context of downward pricing pressure. We recognize the importance of an important, and historically under-appreciated patient resource: the independent pharmacist. These pharmacists, who often educate patients about medication options and optimization, offer a way to bring information about our products to patients, including patients in rural areas who may rely on their pharmacist for many forms of primary care. We believe that these pharmacists will play a bigger role educating patients to make informed decisions about their healthcare needs as the retail market continues to evolve and mature.

The Path Forward

Looking forward to the generics market in general, we expect to see more vertical integration downwards or upwards, with generics companies increasingly behaving like branded companies, sharing risk not only with Contract Management Organizations (CMOs), as in the past, but also with Contract Development and Manufacturing Organizations (CDMOs), who also will take on the greater risks associated with developing complex and specialty products. Whatever direction a company takes, it must innovate and seize on opportunities that competitors have missed. In short, companies that want to see growth must get better at dumping dull marbles and finding shiny new ones, all while keeping good marbles in play.

Whatever generics companies do, they can’t stand still. While we have seen some softening in price declines, the landscape for generics remains challenging — and with a new administration, more unpredictable. Leaders in the generics industry must study this new landscape carefully and seize opportunities to serve patients in new ways, ways that lead not to downward pricing, but toward right pricing over a longer, steadier timeline.

About the Author:

Stephen Beckman is CEO at Yaral Pharma. An industry veteran, he brings more than two decades of executive experience driving growth through strategic leadership, market insight, and a “Doing Things Differently” mindset.