Generic drugs make up 90% of all prescriptions filled in the U.S., yet they only cost 10% of total drug spending. That sounds like a win for patients and insurers - until you ask who’s actually making money producing them. The truth is, many generic manufacturers are losing money. Some are barely breaking even. Others have shut down entire lines because it’s no longer worth it. This isn’t a glitch. It’s the system.
The Price Collapse Nobody Saw Coming
Ten years ago, a simple generic pill like metformin could earn a manufacturer a 50% gross margin. Today, that same pill sells for pennies. In some cases, a 30-day supply costs less than $1 at the pharmacy - and the manufacturer gets a fraction of that. Why? Because when a patent expires, dozens of companies rush in to make the same drug. The market floods. Prices crash. And the last company standing is the one with the lowest cost - not the best product. Teva, once the world’s largest generic drugmaker, lost $174.6 million in 2025 despite $3.8 billion in revenue. That’s a negative 4.6% profit margin. Meanwhile, smaller players like Mylan (now part of Viatris) managed a modest 4.3% margin. The difference? Strategy. Teva kept chasing low-margin commodity drugs. Viatris walked away from them. This isn’t just about greed. It’s about survival. If you can’t make money on a drug, you stop making it. And when that happens, patients face shortages. In 2024, the FDA recorded over 300 drug shortages - many of them for generic, life-saving medicines like insulin, antibiotics, and chemotherapy agents. The reason? No one wants to produce them anymore.Three Ways Generic Companies Are Trying to Survive
Not all generic manufacturers are failing. Some are adapting. Three business models are emerging - and only one of them looks sustainable long-term. 1. Commodity Generics: The Race to the Bottom This is the old model: produce simple, off-patent pills in huge volumes. Think aspirin, lisinopril, or hydrochlorothiazide. The problem? There are 16,000 generic drugs on the market. For many, over 20 companies make the same thing. Competition is brutal. Margins are below 30% - sometimes under 10%. The cost to get FDA approval for one drug? Around $2.6 million. The cost to build a compliant factory? Over $100 million. For most small players, it’s a losing bet. 2. Complex Generics: The High-Wire Act These are drugs that are hard to copy. Think inhalers, injectables, creams that need precise delivery, or combination pills with multiple active ingredients. These aren’t just pills. They’re engineered products. Only a handful of companies can make them. That means less competition. Higher prices. Better margins - sometimes 40% or more. Teva is betting on this. In 2024, it spent $998 million on R&D, mostly focused on complex generics like Austedo XR for movement disorders and lenalidomide for multiple myeloma. These aren’t cheap drugs, but they’re not branded either. They’re in a sweet spot: affordable for patients, profitable for manufacturers. 3. Contract Manufacturing: The Quiet Winner This is the fastest-growing part of the industry. Instead of selling their own drugs, companies like Egis Pharma Services or Catalent manufacture drugs for others - big pharma, startups, even generic brands. They don’t take the marketing risk. They just make the product. And they get paid for it. The contract manufacturing segment is expected to grow from $56.5 billion in 2025 to $90.9 billion by 2030. Why? Because everyone else needs help. Big drugmakers outsource production to cut costs. Startups can’t afford their own factories. Even brand-name companies now use contract manufacturers for older drugs they no longer want to make themselves.
Why the U.S. Market Is Broken
The U.S. is the biggest market for generic drugs - but also the toughest. Why? Pharmacy Benefit Managers (PBMs). These are middlemen between insurers, pharmacies, and manufacturers. They negotiate rebates. They control which drugs get covered. And they often demand bigger discounts from generic makers just to stay on formularies. The result? A race to the lowest price. Manufacturers are forced to slash prices even further to get their drugs listed. Meanwhile, PBMs pocket the difference. A drug might sell for $1 at the pharmacy, but the manufacturer gets 15 cents after rebates and fees. That’s not a business. That’s a donation. In Europe and parts of Asia, pricing is more stable. Governments set fair reimbursement rates. Manufacturers can actually cover costs. In the U.S., it’s a free-for-all.Barriers to Entry Are Higher Than Ever
You might think, “Why don’t new companies just enter the market?” Because the cost to start is insane. You need:- $2.6 million for one FDA approval (ANDA)
- $100+ million for a cGMP-compliant manufacturing plant
- 18 to 24 months to get everything approved and certified
- Connections to PBMs and distributors to get your drug sold
What’s Next? The 0 Billion Opportunity
Despite the pain, the future isn’t all dark. Between 2025 and 2033, over 50 blockbuster drugs will lose patent protection. That includes Humira, Eliquis, and Enbrel - each with billions in annual sales. When those patents expire, there will be a massive wave of new generic opportunities. The catch? Only companies with the right strategy will benefit. If you’re still making aspirin, you’ll be left behind. But if you’re making complex generics, biosimilars, or contract manufacturing services - you’re in the right place. Viatris, for example, sold off its OTC and API businesses to focus on its core generic and biosimilar pipeline. Teva is doubling down on specialty generics. Both are betting on quality over quantity. The global generic market is projected to hit $600 billion by 2033. But that growth won’t come from cheap pills. It will come from smart manufacturing, better science, and fewer players who actually understand how to make money in this space.Sustainability Isn’t About Profit Alone
This isn’t just a business problem. It’s a public health crisis. If no one can profitably make essential medicines, those medicines disappear. Patients die. Hospitals scramble. And the system breaks. Some experts argue that “pay-for-delay” deals - where brand companies pay generics to stay off the market - are a major part of the problem. Banning them could save $45 billion over 10 years. Others say the solution is government price controls or public manufacturing. But none of those fix the root issue: the current model doesn’t work. The only path forward is for manufacturers to stop competing on price and start competing on capability. Build complex products. Master supply chains. Partner with innovators. Stop chasing the lowest bid. The system needs to change - but it won’t until the companies making the drugs stop treating them like commodities.Why are generic drug prices so low in the U.S.?
Generic drug prices in the U.S. are low because of intense competition, pharmacy benefit manager (PBM) rebate systems, and the lack of price controls. When a drug’s patent expires, dozens of manufacturers enter the market, flooding it with identical products. PBMs then demand deep discounts to include the drug on insurance formularies, forcing manufacturers to slash prices - sometimes below production cost - just to stay in business.
Can generic manufacturers still make a profit?
Yes - but only if they avoid commodity generics. Companies that produce complex generics (like inhalers, injectables, or combination drugs) or operate as contract manufacturers can still achieve 30-40% margins. Traditional makers of simple pills, however, often operate at 10% or less - and many are losing money. Profitability now depends on technical expertise, not volume.
What’s the difference between a generic drug and a biosimilar?
A generic drug is a chemically identical copy of a small-molecule brand drug, like metformin or atorvastatin. A biosimilar is a highly similar version of a biologic drug - made from living cells, like Humira or Enbrel. Biosimilars are harder to make, require more testing, and cost more to develop, but they command higher prices and better margins than traditional generics.
Why are drug shortages happening with generic medicines?
Drug shortages occur when manufacturers can’t make a profit on a generic drug. If the price is too low to cover production, regulatory, and supply chain costs, companies stop making it. This is especially common for older, low-margin drugs like antibiotics or chemotherapy agents. Even a small disruption in raw material supply can shut down production if there’s no financial incentive to keep running.
Is contract manufacturing the future of generic drugs?
Yes - it’s already happening. Contract manufacturing organizations (CMOs) are growing faster than any other segment of the generic industry. Companies like Catalent, Lonza, and Egis Pharma Services now produce drugs for brand-name companies, startups, and generic firms. This model reduces risk, leverages existing capacity, and allows manufacturers to profit without owning the brand. It’s becoming the default path for new entrants and established players alike.
What’s stopping new companies from entering the generic drug market?
The barriers are financial and regulatory. It costs $2.6 million just to file for FDA approval of one generic drug. Building a compliant manufacturing facility costs over $100 million. It takes 18-24 months to get approved and gain formulary access. And even then, you’re competing against giants with decades of supply chain relationships. Over 65% of new entrants focused on commodity generics fail within two years.
