Squaring the Triangle: The “impossible” balancing act behind the off-patent medicines industry

The physicist Richard Feynman once began a lecture by imagining that all scientific knowledge were destroyed and only one sentence passed on to those who survived.

He asked what statement would contain the most information in the fewest words (his answer: “all things are made of atoms”).

If I had to use just one sentence to describe what I know about the generics industry I have worked in for most of my life, it would be: “Everything comes down to the balance between quality, supply, and price”.

It’s a deceptively simple statement that contains an enormous amount of information about the everyday realities of this critical industry, which provides the majority of essential medicines worldwide.

Any company that finds the optimal balance is set for sustainable success. The catch – there’s always a catch – is how to find that balance. I sometimes refer to it as the attempt to “square the triangle”.

Shades of grey

Let’s start with quality. Theoretically, it’s easy: you can’t compromise on quality. There is a minimum bar set by regulators worldwide and you either meet it or you don’t.

If not, you either don’t get to enter the market (no marketing authorization) or you have to exit it when something goes wrong (market recall or withdrawal).

In practice, though, differences in quality are a fact of life and, despite clear black and white areas where regulators worldwide all agree, there is still an expanse of grey in the middle.

Some companies may choose to offer a “minimal viable product”, while others compete by going beyond minimum requirements (both for the product and for related aspects, including customer service levels).

Another Prisoner’s Dilemma?

The second base of the triangle is supply. For the past 20 months, most of the political discussion around medicines has focused on how to ensure security of supply – particularly the perceived need to “bring production home” for certain products and materials now largely produced in lower-cost countries.

In theory, all companies have an interest in reliable supply chains – no supply means no sales – but incentives to ensure the continued supply of individual products can vary greatly on a case-by-case basis, particularly if there are multiple players in a low-margin commodity market.

As with the Prisoner’s Dilemma mind-game, everyone pursuing their own best interest can sometimes result in the worst outcome for all.

Price versus value

Finally, price. In today’s generics market, the lowest price is often seen as the ultimate competitive advantage. However, we are seeing first signs of a trend towards more balanced procurement policies in several markets, including a decision to reward investment in environmental sustainability measures for tenders in Scandinavia.

This trend is to be welcomed. Let’s be clear: as in any other industry, the lowest-cost product is unlikely to also boast the highest quality standards and the most reliable supply chain over time.

At the same time, we all have a duty to offer customers and patients the best possible overall value, i.e. the optimal combination of fair price (for both buyer and seller), quality and supply.

At my company, we have formulated a set of “pricing values ” to ensure our employees act in accord with three basic principles: pricing for access, for value, and for equity.

Put simply, that means we aim to launch our products at a discount to the reference medicine, ensure we only raise prices for good reasons (e.g. local inflation), and keep prices stable when markets don’t work the way they should (as in the early days of the Covid crisis, when surging demand met supply constraints head-on).

It’s not rocket science – this is what generic companies should do – but it seldom hurts to formulate intentions clearly.