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Generic medicine costs to rise?

The cost of generic medicines could rise, if a bill introduced by the Greens passes through government.

According to the Generic Medicines Industry Association (GMIA), the bill will place a significant administrative and cost burden on its members, which would need to be passed onto consumers through higher drug prices. As a result, GMIA has called on the Federal Senate to reject the bill.

The bill bans drug companies from paying to fly doctors to conferences and will force them to disclose payments, fees and gifts. Ken Harvey, Latrobe University associate professor says research has shown that too close a relationship between public health professionals and therapeutic companies was detrimental to public health.

“For example funding their travel and registration to attend conferences, payment for consultancy, company sponsored lectures, sitting on advisory boards all of this can encourage conscious or unconscious reciprocal by the recipients,” he said. “This can manifest itself in uncritical uptake of new, expensive and less well evaluated products and under-utilisation of more cost effective drugs and medical devices.”

Generic medicines are typically exact copies of brand name drugs, sold under a different name – such as “Chemist’s Own”. As they are generally lower in price than the brand name products, margins for the generic drug makers will typically be lower than their usually larger brand name competitors.

Sigma Pharmaceuticals (ASX: SIP), together with Australian Pharmaceutical Industries (ASX: API) and the unlisted Symbion controlled the majority of Australia’s drug wholesaling market, until Sigma sold its pharmaceuticals business in 2011 to Aspen Pharmacare.

Foolish takeaway

No matter whether the bill gets passed by the Senate or not, both Sigma and API are well positioned to take advantage of Australia’s aging population, along with Ramsay Health Care Limited (ASX: RHC) and Primary Healthcare Limited (ASX: PRY).

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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