Boom bust cycles exist for up to 81% of generics as market competition forces prices down to levels which cannot be profitably be sustained by manufacturers, at which some stop manufacturing. This leads to a reduction in the stock available to dispense, followed by a shortage and a price rise. Manufacturers then spot that prices are higher and profitable again, so recommence manufacturing. Prices then start to decline as free enterprise restarts and the whole cycle repeats. These cycles are normally about 3 or 4 years long, but they can be longer on occasion.
Sometimes there is consistency in the unprofitable prices which trigger the price rises. This has been seen in products where the same low price triggers a price rise in each cycle. However, in the case of Hydrocortisone Ointment these unprofitable prices were different in before each price rise. In 2019 the lowest price of Hydrocortisone Ointment 1% 50g was £1.64, whereas in 2005 it was £0.99, a reduction of about 40%. This may be due to competition or new technology reducing manufacturing costs.
If most cycles are 3 or 4 years long, then why do products such as these have such long 16 year cycles? These super-cycles may relate to the complexity of manufacturing ointments rather than solid dose products. Perhaps this means that stopping manufacturing is a much more difficult decision to make, as it cannot be turned off and on at will. Cancelling manufacturing of a sold dose product can normally be reversed in a few months as there are so many companies which can produce tablets or capsules. There are also normally many buyers for solid dose medicines, and so manufacturing may continue for other buyers despite some of them cancelling. In the case of more difficult to make products like ointments, creams and devices, cancellation may cause real problems for the manufacturer which may see them close their operation completely.
In April 2008, the average UK price of Hydrocortisone Ointment 1% 50g reached £19.82. There was also a very steep build up to this price in 2006 and 2007. This time the price is rising more slowly than in the past. In fact all three packs are rising in a manner that looks much more like the way the 15g and 30g pack prices rose in 2005 and 2006. This may mean that peak prices will be reached relatively soon and concessions may not need to be granted.
Manufacturing complexity is a principal weapon for both branded and device companies in their fight against generics. When they lose their exclusivity (because their patent protection has come to an end) manufacturing complexity delays or stops generic companies getting in on the act due principally to cost. Another way companies can delay or prevent competition is by including more than one active constituent in their medication. This can limit the product’s sales as many clinicians still don’t like combined products, and can result in a smaller value target for generic competitors to chase.
Overall the message is that manufacturing complexity protects your product (brand, device or generic) against competition.