As one of the most efficient markets in Europe, the UK's generic medicines sector saves the NHS billions of pounds each year – but how will it cope with the arrival of biosimilars and a government intent on austerity at any cost?

The mechanism for controlling the cost of medicines once their patents expire in the UK is so effective that people forget how clever it is, says Warwick Smith, director-general of the British Generic Manufacturers Association.

"Our system is so efficient – for the NHS as well as for generic companies – that we have the lowest drug prices in Europe and one of the highest generic market shares," he says, pointing out how the system is also free of excessive bureaucracy. "What strikes me when I talk to colleagues around Europe is that they have to deal with government reimbursement departments of 15 or 20 people where they have to ask permission for a price and it can take weeks to come through. Here in the UK, the Department of Health runs generic reimbursement on three part-time staff."

NHS data show that 76 percent of NHS prescriptions are filled generically, the highest market share in Europe. "Here in the UK, doctors are taught at medical school to use the generic INN – international nonproprietary name – for a drug rather than the brand name, even for products where the patent has not expired, so that 87 percent of NHS prescriptions are written generically. The second part of the system is in the pharmacy; when a drug is under patent, the brand is dispensed but as soon as it expires the pharmacist is only reimbursed the generic price so it's an automatic market mechanism to drive generic uptake."

The system is the best of both worlds, for both government and generic companies, says Smith. "They get low prices where competition works but they also have the power to intervene and set prices if competition doesn't work. Typically, the arrival of a generic will reduce the price by 90-95 percent – for example, the price of simvastatin plunged to less than a tenth of the originator's price within weeks. For some products – where the molecule is complicated or there are legal issues with a patent or fewer patients – price may decay less but even with branded generics you see 80 percent reductions. For the majority of generics, we have a commodity market around each market – if the price goes up more people come in, if it becomes unprofitable people pull out and the price goes up, repeating the cycle. The price just follows the supply and demand model."

Yet, there is room for improvement, he says. "We think we might be able to add another six to eight percent to the 76 percent of NHS prescriptions dispensed generically before the market gets as generic as it can be. We can do this in a number of ways – for example, there is still some resistance from a few clinicians to writing drugs generically on their prescriptions. Another area, which can be difficult to get your head around, is something called brand equalisation, where some originators do a deal with pharmacy to equalise the price between the originator and the generic as long as the pharmacist dispenses the brand. Here, the scrip shows as generic in NHS data but there might be as many 10 percent of prescriptions that are being met by a brand. It is generics that deliver the pharmacy margin, so if they dispensed more generics it would save the NHS some money."

The big news in the generic space is the advent biosimilars, says Smith. "A range of companies are getting into biosimilars but the majority are what would be considered generic companies. It is a very complex area and it would take a braver man than me to tell you what the market will look like in ten years, except to say that it will look a little more like a traditional generic market.

"Biosimilars fall into a middle ground between originator and generic; they are 'known' molecules but they are complex because they are synthesised from living material. Given this complexity and the costs involved – bringing a generic to the market costs £25-50 million but a biosimilar is £300-350 million – we will not see a market like the current generic landscape, with 80 or 90 small companies. Instead, we will see 10-12 large companies like Sandoz, Activis and Teva that already have the right skillset, knowhow and resources," he says.

Clinical data around switching will be a game changer. "At the moment, regulatory guidance says biosimilars should not be prescribed by INN because no two strains of the compound are exactly same and until there is evidence in clinical practice that automatically switching patients between different manufacturer's versions of the product has no clinical disbenefit, it will always be 'safety first'. However, we are beginning to see switching taking place, and all the clinical evidence from those programmes suggests there is no detrimental effect on patients. Once there is enough data – both from switching trials and from clinical practice – that moving patients from one biosimilar to another is safe, then the market will start to look much more like a generic market."

Biosimilars will bring considerable cost savings even if the price decay is less, says Smith. "You will never see a sustainable market if prices decay at the same rate as they do with generics, but a 30 or 40 or 50 percent drop in price for a £30,000 a year product is a massive saving. What's more, NICE has not yet recognised that biosimilar competition may change the way they view the affordability of biological products, with significant price reductions making products easier to recommend. We are not there yet but the day will come, although everyone is being very cautious about that at the moment."

Warwick Smith is director-general of the British Generic Manufacturers Association