Effects of Generic Entry on Market Shares and Prices of Originator Drugs: Evidence from Chinese Pharmaceutical Market

Abstract

Objectives

This article analyzes how market shares and prices for brand-name drugs are affected by generic competition in China.

Methods

Data were collected for originator drugs that experienced initial generic entry between 2006 and 2016 from China Medicine Economic Information (CMEI), a large database of drug procurement records covering 699 tertiary hospitals across 28 provinces in mainland China. Quarterly utilization and expenditure data were collected. We compared the change of market share and price of originator drugs eight quarters after the first generic entry. General linear regression was performed to analyze the factors that influence the market share and price of originator drugs.

Results

A total of 15 of 27 originator drugs maintained over 70% market share eight quarters after the first generic entry. In addition, 24 brand-name companies lowered prices with an average price decrease of 3% eight quarters after the first generic competitor appeared; prices for 3 drugs rose by an average of 0.62%. The median price ratio between originator and generic drugs was 1.76 when the first generic substitution entered, and the ratio became 2.00 eight quarters later. Regression showed that the number of generic manufacturers and time interval since the first generic entry exhibited a negative relation with the market share of originator drugs (P < 0.01; P < 0.01), and no relation with the prices of originator drugs (P = 0.61; P = 0.42).

Conclusions

Generic medicines in China had only modest market penetration and little effect on originator drugs’ prices eight quarters after first generic entry.

Key Points for Decision Makers

In the first eight quarters after market entry, generic drugs in China achieve limited market penetration, with originator drugs maintaining dominance.

Generic competition results in only modest price declines for originator drugs, and in some cases, prices even increase, reflecting the “generics paradox.”

Physician and patient skepticism, lack of mandatory substitution policies, and past regulatory weaknesses slow the adoption of generic drugs.

Since 2017, China has implemented significant changes in healthcare reform, including volume-based procurement and stricter requirements for bioequivalence, which necessitates further research to evaluate the long-term impact of these policies.

Introduction

Pharmaceutical expenditures have increased significantly over the past decade, with originator drugs accounting for the majority of this spending [1]. Manufacturers usually set high prices for originator drugs during the period of patent and market-exclusivity protection. In many countries such as the USA, once drugs lose patent protection, cheaper generics quickly enter the market to capture some of the prescriptions, which contributed to substantial savings [2]. Governments throughout the world tried to promote the use of generic drugs through a multiplicity of supply- and demand-side policies [3, 4]. On the supply-side, key measures include reimbursement price ceilings, an emphasis on reference pricing, and/or regulatory approval mechanisms that facilitate market entry soon after patent expiry. Demand-side measures focus on creating incentives to encourage the use of generics, such as patient co-payment, generic substitution, and physician budgets [5, 6]. In the USA, generics were reported to account for 90% of prescriptions, but only 22% of drug costs, thus saving the healthcare system an estimated $1.67 trillion due to the availability of low-cost generics [7].

High drug costs cause a financial burden on China government. The total health expenditure in China increased from 1754.19 billion yuan in 2009 to 5799.83 billion yuan in 2018 [8], while drug expenditure accounted for nearly 40%, compared with 18% in countries of the Organization for Economic Co-operation and Development (OECD) [9]. In recent years, the Chinese government has introduced a series of policies aimed at encouraging the development and use of high-quality generic drugs. By abolishing government-set drug prices and introducing market competition mechanisms, the government has driven prices down [10]. Reforms to the generic drug registration and evaluation standards have strengthened bioequivalence requirements, ensuring that generics are consistent in quality and efficacy with originator drugs. The nationwide consistency evaluation of the quality and efficacy for generic drugs has eliminated substandard products and raised the market entry threshold [11]. Additionally, the national volume-based procurement system has significantly reduced generic drug prices and enhanced access to affordable medications [12]. The introduction of patent linkage systems has created space for the legal market entry of high-quality generics, and the Bolar exemption encourages domestic companies to develop high-quality generics before the patents of originator drugs expire [13]. Medical insurance policies prioritizes coverage for generics that pass the consistency evaluation, increasing their clinical usage [14]. These measures have not only reduced healthcare spending, but also significantly improved patient access to high-quality medications.

However, significant issues still persist in the generic drug market in China. There are more than 4000 local generic drug manufacturers, many of which are small-scale enterprises producing generics of older small-molecule drugs [15]. Mandatory substitution is a common policy in many countries to encourage the use of generic drugs, but it has not been introduced in China thus far. Since bioequivalence testing had not been mandatory until 2012 in China [16], there was little evidence to support the declaration that generics produced were chemically and therapeutically equivalent to their originator drug [16, 17]. Thus, many Chinese patients and physicians had no confidence in the purity and potency of domestic generics [18]. In a recent study, Huang analyzed the sales of 11 cardiovascular drugs in all public hospitals in Beijing in 2015. He found that the average sales amount of generics only accounted for 18.93%, although the prices of originator drugs were higher than generic drug prices (ranging from 1.01 to 5.77 times) [19]. The prices of off-patent originator drugs are much higher than those of domestic generics, with Chen indicating that the average price difference was 73% in 2010 and increased to 82% in 2017 [20]. Moreover, the generic drug market remains weakly competitive, as more than 80% of the top 20 drug procurement amounts in Zhejiang and Fujian provinces in 2023 were for originator drugs [21].

In the UK, the generic substitution rate after patent expiration reaches as high as 90%, which is associated with high levels of voluntary prescribing of international nonproprietary name (INN) drugs and generics typically being priced at only 5–10% of the original drug price before patent expiration [22]. At the same time, several demand-side measures encourage the preferential use of multisource drugs over still-patented drugs. For example, in Scotland, the use of statins increased by 412%, including a rise in higher-dose prescriptions, yet the expenditure on lipid-lowering drugs decreased by 50% between 2001 and 2015 [23]. For proton pump inhibitors (PPIs), the price of generics is only 8.5% of the originator drug’s price. With the encouragement for generics, the total expenditure on PPIs in Scotland in 2017 was 66.7% lower than in 2001, despite a 3.06-fold increase in usage [24]. Similarly, for selective serotonin reuptake inhibitors (SSRIs), prescribing citalopram as a replacement for the patented escitalopram was encouraged, leading to a 2.34-fold increase in usage, while SSRI expenditure decreased by 73.7% between 2001 and 2017 [25].

In Sweden, mandatory generic substitution is implemented in most cases, with originator drugs requiring 100% out-of-pocket payment. Low prices and mandatory prescribing, among other incentivizing measures, have significantly reduced Sweden’s drug expenditure, even as the use of PPIs and statins has greatly increased [26].

In the Netherlands, once a patent expires, health authorities hold quarterly auctions with generic drug companies to help reduce generic drug prices. As a result, the cost of generic omeprazole and simvastatin is only 2% of the originator drug price, leading to substantial savings [27].

Several studies have focused on the impact of patent expiration on market competition between originator drugs and generics [28]. Magazzini found that originator prices decreased by 25% on average in the 9 months after patent expiry in Germany and the UK [29], while some of these studies showed that originator prices did not alter significantly after patent expiration in the USA [30–32]. Scherer’s study even reported that the prices of originator drugs often increased in the USA, a phenomenon called the “generics paradox” [33]. Previous studies also examined the trends in the market share of generics. Grabowski found that generics captured a large share of market sales (50%) within 1 year after the initiation of generic competition in the USA [34]. However, the extent of generic penetration varied significantly by country. The average generic penetration up to 3 years after first entry reached 55% in the UK, but only 10–25% in France, Italy, and Spain [35]. Grabowski found that the speed at which generics captured market share was positively associated with the size of originator drugs’ pre-entry sales, the therapeutic class of originator drugs, and the calendar date of generic entry [36, 37]. It should be noted that these results are time sensitive and need to be viewed with caution.

Few studies have explored the relationship between originator and generic competition in China. This study aims to address this gap, offering new insights into the competition mechanisms in China’s pharmaceutical market. This paper focuses on the impacts of generic entry on brand-name drug prices and sales, employing a panel of 27 brand name drugs and their corresponding generic versions that experienced their first generic entry between 2006 and 2016. The findings could play a significant role in shaping drug policies in China, particularly those related to generic drugs. Moreover, the challenges surrounding generic substitution are not unique to China. These issues are prevalent in many countries, especially in developing nations that share similar economic and regulatory conditions [38].

Methods

Data Sources

Quarterly utilization and expenditure data including generic name, trade name, price, dosage form, strength, package size, and purchase time were derived from China Medicine Economic Information (CMEI), a large database with complete drug procurement records for the past 10 years covering 699 tertiary hospitals (accounting for 40% of all tertiary hospitals) across 28 provinces in mainland China (excluding Qinghai, Tibet, and Hainan). We defined a generic product as having the same active ingredient and dosage form compared with its originator counterpart, ignoring differences in strength and package sizes. To estimate price differences that might be attributed to different strengths and package sizes, we standardized the volumetric units. For this purpose, we converted quantities into daily dosages on the basis of the World Health Organization’s Defined Daily Dose database.

Sampling

We define generic entry as the first quarter in which any generic firm has positive sales. A total of 27 drugs that experienced initial generic entry between January 2006 and December 2016 were included, and belonged to 11 therapeutic classes including anti-infective agents, antineoplastic agents, cardiovascular agents, central nervous system agents, dermatologic agents, gastrointestinal agents, genito urinary agents, immunosuppressive agents, lipid regulating agents, respiratory system agents, and other. The number of manufacturers, the price, and market share of originator drugs and their generic counterparts were recorded quarterly over eight quarters after the first generic entry of each drug.

Statistical Analysis

The price per defined daily dose were defined and the market share of originator drugs and their generic counterparts were calculated on the basis of their sales in each quarter, and the market share was determined as follows:

$$S_{\text{r}}=\frac{\sum P_{\text{ORi}}{Q}_{\text{ORi}}}{\sum P_{\text{ORi}}{Q}_{\text{ORi}}+\sum P_{\text{GMi}}{Q}_{\text{GMi}}}\times 100\text{\%}$$

$$S_{\text{r}}^{\prime }=1-S_{\text{r}}$$

Q_ORi: sales volume of the original branded drug, Q_GMi: sales volume of the generic drug, P_ORi: price of the original branded drug, P_GMi: price of the generic drug, S_r: market share of the originator drug, $S_{\text{r}}^{\prime }$: market share of the generic drug

We computed the ratios of the average generic price to that of the corresponding reference product.

Considering our data did not follow a normal distribution, a general linear regression model was adopted to analyse the factors associated with market share and price of originator drugs.

All analyses were performed using Stata (version 14.0) and Excel 2016; 95% confidence interval (CI) and P value were reported. A two-sided P value < 0.05 was considered to be statistically significant.

Results

Number of Generic Competitors

A total of 27 originator drugs and their generic competitors were included in this study; eight quarters after generic entry, each sampled drug had an average of 2.4 generics, ranging from 1 to 10 (Fig. 1). Most (70.4%) originator drugs have only one or two generic competitors. Antineoplastic agents contribute 17 generic drugs with 5 sampled drugs, and as such it is the therapeutic class with largest number of generic drugs. Cefprozil is considered to be the drug with the most generic competitors (10 generic product eight quarters after the first generic entry).LE: Please confirm change.We confirm that antineoplastic agents indeed have the highest number of generic drugs (17) among all therapeutic classes in this study. This conclusion is supported by Fig 1.

Fig. 1.

Number of generic competitors eight quarters after the first generic entry

Changes in Market Share After Generic Entry

Eight quarters after the first generic entry, 15 of the original drugs still captured 70% of the market, and 9 maintained a market share of more than 90%. Glutamine and ipratropium bromide saw the smallest changes in market share, respectively; they maintained 99.9% and 99.3% of the market share. Only four of the original drugs saw their market share fall below 20% (see Fig. 2). Within 1 year of entry, market share of originator drugs dropped to 79.1% overall.

Fig. 2.

Market shares of originator drugs by the end of the eighth quarter

The average market share eight quarters after the first generic entry for originator drugs with at least three generics was 55.9%, lower than the more than 70% share for compounds with one or two generics. (see Fig. 3). To some extent, the number of generic competitors reflected the generic penetration rate in a positive way.

Fig. 3.

Average market shares of originator drugs by number of generic competitors eight quarters after the first generic entry

Changes in the Price of Original Originator Drugs and Original–Generic Price Ratio

Most originator drugs reduced their prices modestly, averaging 3% at the eighth quarter point. Three drugs, pregabalin, decitabine, and ipratropium bromide, increased their prices on average by 0.62% (see Fig. 4).

Fig. 4.

Price changes of original drugs

As more generic manufacturers entered the market, generic prices decreased more than the prices of the originator. The ratios between the price of originator and generic drugs became larger (see Table 1). Imatinib and dasatinib, two antineoplastic drugs, saw the largest difference between their generic and originator versions.

Table 1.

Original–generic price ratio of each molecule

On average, the originator–generic price ratio increased to 2.00 after eight quarters. The average original–generic price ratio for compounds with at least three generics was higher than for those with two or fewer generics (see Fig. 5). The average price ratio of all groups increased slowly.

Fig. 5.

Average original–generic price ratio by number of generic competitors eight quarters after the first generic entry

The average relative price is determined from the branded–generic price ratio of each molecule.

Analysis of Factors Associated with Market Share and Price of Originator Drugs

The result of general linear regression is presented in Table 2. The number of generic manufacturers and the duration of competition from generic drugs were negatively correlated with the market share of the original drug (P < 0.01; P < 0.01). No significant correlation was observed in price analysis (P = 0.52; P = 0.90).

Table 2.

Linear regression analysis of the factors associated with market share and price of originator drugs

Dependent variables	Independent variables	Coef.	P value	95% confidence interval
Market share	Duration of competition from generics (quarters)	− 0.024	0.000	(− 0.036, − 0.012)
	Number of generic competitors	− 0.067	0.000	(− 0.089, − 0.044)
Price	Duration of competition from generics (quarters)	− 0.001	0.523	(− 0.004, 0.002)
	Number of generic competitors	− 0.000	0.904	(− 0.005, 0.005)

Discussion

The results of this study suggest that generic drugs in China have only modest market penetration, and even after the entry of generic drugs, original drugs still occupy a dominant position in the market. Among the 27 original drugs, 15 have maintained a market share of more than 70% eight quarters after first generic entry. According to a previous study, the market share of generic drugs in some European countries was 46.5–62.1% eight quarters after the original drugs lost their exclusive right; among them are 62.1% in the Netherlands, 55.7% in Denmark, 54.9% in Germany, and 46.5% in the UK [39]. There are differences in the market share of generic drugs among different countries, which may be affected by the policies of each country. For example, the price control system may discourage generic drug manufacturers from entering the market, while economic incentives and education activities may help increase the substitution rate of generic drugs. European countries basically implement an internal reference pricing system. Among them, the United Kingdom has only set price ceilings for very few generic drugs, while Germany, Denmark, the Netherlands, and other countries have not set price ceilings for generic drugs. At the same time, carrying out publicity and education activities for generic drugs, as well as providing economic incentives, may help to promote the use of generic drugs by doctors, pharmacists, and patients [39]. Therefore, the market share of generic drugs in the abovementioned countries is higher.

The low penetration rate of China’s generic drugs obtained in this study is also affected by China’s policies. Before 2016, the consistency evaluation of generic drugs in China was not fully carried out, and the safety and effectiveness of generic drugs lacked clinical evidence. In addition, the common perception that “cheap price equals low quality” negatively impacts Chinese health professionals and patients, reducing doctors’ willingness to prescribe generic drugs, while patients’ brand loyalty reinforces this trend [40]. Studies have found that physicians in developing countries tend to have a more negative attitude toward generic drugs, and nearly half of the doctors in China have an uncertain or negative view of generics [41]. Drug price policy was also considered to be an important contributor to the low generic penetration. Before September 2017, Chinese hospitals were allowed to charge a markup of no more than 15% on drug purchase price to support hospital profit and physicians’ salaries, which may provide an economic incentive to prescribe more expensive original drugs instead of their cheaper generic counterparts [42]. Furthermore, there is no generic substitution policy in China. Most drugs are prescribed by their brand name rather than international nonproprietary name (INN), and Chinese pharmacists do not have the right to substitute generics as they do in the USA [43], which might lower the speed of generic spread.

We also found that in China, the prices of most original drugs did not drop significantly after the generic entry, and there were even some cases of price increases, which is the phenomenon of “paradox of generic drug competition.” This suggests that original drug manufacturers will not respond to generic entry by lowering the price of original drugs, similar to results obtained in previous studies [44]. The results of the study further show that as the number of generic drug manufacturers entering the market increases, the price of generic drugs will further decrease, which will increase the price ratio of the original drug to the generic drug. Several studies have shown that the impact of generic entry on the price of original drugs varies from country to country [45]. Because countries may adopt different pricing and reimbursement policies, original drugs prices change in different patterns. The phenomenon of “paradox of generic drug competition” may be related to the fact that original drug companies have raised the price of original drugs to make up for the loss of market share [46], especially for original drugs that have greater advantages in quality and efficacy compared with generic drugs. In addition, it may also be related to patients’ higher preference and trust in original drugs. Before 1 June 2015, drug pricing relied on the government’s maximum retail price for the drug market. However, a company can apply for independent pricing if it can provide evidence that a drug is of better quality, which may be easier to provide for a original drug. In addition, original drug manufacturers may not choose to cut prices significantly to make up for the loss of market share. These reasons may cause original drug manufacturers to not significantly reduce the price of original drugs after generic entry.

Recently, the Chinese government carried out a series of policy reforms to promote the use of generic drugs. On the supply-side, the government issued the Recommended List of Drugs for Encouraging Generic Drug Production in 2019, 2021, and 2023, which required relevant government departments to support these medicines in clinical trials, critical generic technology research, and priority review and approval [47]. In addition, the first generic exclusive system as part of patent linkage system was established in 2021. On 6 December 2023, Everolimus was officially approved for market entry, becoming the first domestic product to successfully challenge a patent and receiving a 12-month market exclusivity period [48]. The consistency evaluation of generic drugs has been implemented to improve the safety and efficacy of generic products. As of July 2024, a total of 9737 drug specifications have successfully completed the evaluation, significantly meeting the clinical needs of patients [49].

On the demand-side, economic incentive of prescribing more expensive original drugs has been reduced or eliminated in multiple ways, including zero-markup policy, Diagnosis-Related Groups (DRG), and Diagnosis-Intervention Packet (DIP) payment. In December 2018, China launched the national volume-based procurement (NVBP) policy (also referred as the “4 + 7” pilot policy) to reduce drug prices and promote generic drug use. Most drugs in the “4 + 7” list are generic drugs with quality consitency. With a large volume, these generic drugs can penetrate the market faster. Until now, ten batches of volume-based procurement have been carried out, with the average price dropping by 55% and the average substitution rate of generics in tertiary hospitals reaching 58% [12]. In 2018, the Opinions on Reforming and Improving Generic Drug Supply Security and Usage Policies was issued, further supporting the procurement and use of generics [50].

China is pursuing reforms to its healthcare reimbursement system, aiming to establish a reimbursement level, or “reference price,” for the originator and generic drugs that have the same active ingredients. However, progress has been slow because of the concerns that patients may be discontented with the higher co-pay for originator drugs.

There might also be several ways to further increase generic drug use, such as patient education or promoting the implement of generic substitution policy. Policies in China have changed greatly after 2017, thus further studies about implementing results and influencing factors are needed.

Limitations

The article adds to the existing information on competition between generic and brand drugs in Chinese pharmaceutical market. Nevertheless, it has some limitations and further research is needed in follow-up studies. First, it focuses more on the hospitals and fails to represent pharmacies outside hospitals. However, given that in China most drugs are delivered through hospital systems, the omission of other drug-delivering institutes will make little difference to the results. A second limitation is that the observation period of each sample drug was relatively short. The sample size was small, with only 27 sample drugs, which might compromise representativeness. However, samples were drawn from 28 provinces across the country, a significant improvement compared with previous studies.

Conclusions

Our results showed relatively low market penetration of generic medicines in China when the patent of the originator has just expired. The price of branded drugs is not significantly reduced despite the generic competition, although increased competition between generic producers does tend to decrease prices of the generic drugs themselves. The lack of price competition by originator drugs manufacturers has economic consequences in the Chinese pharmaceutical market. Continuing to increase the use of generics is essential to maintaining equitable and affordable healthcare in China. However, there are many challenges and disincentives that stand in the way. More policy to promote generic medicines needs to be supported by some complementary interventions to remove those potential barriers. Further research is needed to attain a more effective policy mix that will encourage generic entry and penetration without undesirable or unforeseen distortions of the healthcare system.

Declarations

Funding

This work was supported by the National Natural Science Foundation of China (Grant no. 71503017, Grant no.71874006). The funders were not involved in the design of the study and collection, analysis, and interpretation of data and in writing the article. The authors had full access to all of the data in the study and had final responsibility for the decision to submit for publication.

Conflict of interest

The authors declare no potential competing interests.

Data availability

The data for this study were obtained from a commercial database, please contact the author for details: jingchen@bjmu.edu.cn

Ethics approval

Ethics approval is not required for this study.

Authorship contributions

Weimiao Li: formal analysis, writing—original draft, and writing—review and editing; Xiaoyu Li: writing—original draft and writing—review and editing; Yaoguang He: methodology and resources; Luwen Shi: supervision and approval of the final manuscript; and Jing Chen: conceptualization, supervision, project administration, and approval of the final manuscript.

Consent to participate

Not applicable.

Consent for publication (from patients/participants)

Not applicable.

Code availability

The code and data used in this study are available upon request from the corresponding author.