Drug companies brace for troubles to come

Drug companies brace for troubles to come

A recent Moody’s Investment Service report says that several recent developments will likely have long-term consequences for the generic drug industry, impacting profits and increasing risk.

In June, the Supreme Court ruled that patent settlements between generic and branded pharmaceutical companies may sometimes violate antitrust laws. This ruling, Moody’s said, will likely lead to more investigations by the Federal Trade Commission and more class-action lawsuits. And now that the Supreme Court has ruled, cases that had been stayed pending the court’s ruling will now move forward, potentially exposing companies to large payouts.

Additionally, last month the Food and Drug Administration (FDA) said it’s considering changes to rules regarding pharmaceutical safety labels, which have the potential to increase product liability risk for generic drug manufacturers, said Moody’s.

"Recent developments will likely lead to higher legal, regulatory and insurance costs for generic drug makers and expose them to potentially large payouts due to antitrust and product liability allegations," said Moody’s vice president and senior credit officer, Jessica Gladstone in a press release. "At the same time, they face greater pricing pressure from customers and increasing regulatory and quality scrutiny from the FDA."

Gladstone also said in the press release that all of these added factors will begin to pressure the generic drug manufacturers’ profitability and elevate event risk, which could affect the way the companies run their businesses.

The report also mentioned that despite the numerous pressures faced by these companies, the industry continues to benefit from a number of growth drivers, including increasing demand for lower-cost drugs worldwide, a strong pipeline of branded products to copy and the potential for biosimilars over the coming years. However, larger size, a scalable infrastructure, good liquidity and financial flexibility will become increasingly important to companies in order to remain competitive in the market. Smaller companies may find it more difficult to compete, potentially leading to greater industry consolidation, said the report.