Generic Manufacturer Profitability: Business Models and Sustainability

Generic drugs make up 90% of all prescriptions filled in the U.S., yet they account for just 10% of total drug spending. That’s not a typo. For every dollar spent on prescription medicine, nine cents go to generics. But behind those numbers is a broken system. Many generic manufacturers are losing money - not because they’re inefficient, but because the market has turned against them.

The Profitability Crisis in Generic Drugs

In 2025, Teva Pharmaceutical reported a loss of $174.6 million despite generating nearly $3.8 billion in revenue. That’s a negative profit margin of -4.6%. Meanwhile, Mylan (now part of Viatris) managed a slim 4.3% margin on $125.7 million in sales. These aren’t outliers. They’re symptoms of a deeper problem.

The price of generic drugs has collapsed. Ten years ago, a simple generic pill might have carried a 50-60% gross margin. Today, it’s often below 30%. Why? Because when a brand-name drug loses patent protection, dozens of manufacturers rush in. Each one undercuts the other. The result? A race to the bottom. The FDA approved over 1,600 generic drugs in 2022 alone. Each one adds more pressure.

The cost to get a generic drug approved? Around $2.6 million per application. Add in a $100+ million investment in FDA-compliant manufacturing facilities, and you’ve got a high-risk, low-reward business. For many, it’s not worth it. That’s why shortages of essential medicines - like antibiotics, chemotherapy agents, and insulin - are becoming more common. As Dr. Aaron Kesselheim from Harvard put it, “The relentless price competition has created a market failure.”

Three Business Models Trying to Survive

Not all generic manufacturers are failing. Some are adapting. Three distinct business models are emerging:

• Commodity generics: These are the old-school, low-margin products - simple pills like metformin or lisinopril. Hundreds of companies make them. Prices are set by auctions between distributors and pharmacy benefit managers (PBMs). Profit? Often less than 5%. Many companies are exiting this space.
• Complex generics: These are harder to copy. Think inhalers, injectables, topical creams, or combination drugs. They require advanced formulation, specialized equipment, and deep regulatory knowledge. Fewer companies can make them. That means less competition - and better margins. Teva’s growth in 2024 came largely from drugs like Austedo XR and lenalidomide, both complex generics with limited competitors.
• Contract manufacturing (CMOs): Instead of selling their own brands, some manufacturers now produce drugs for others. This is the fastest-growing segment. The global contract manufacturing market for generics is expected to hit $91 billion by 2030, up from $56.5 billion in 2025. Companies like Egis Pharmaceuticals launched dedicated CMO divisions in 2023 to tap into this demand. It’s less risky. No marketing costs. No pricing wars. Just production.

Why Consolidation Isn’t the Answer

You’d think mergers would fix this. And in the short term, they did. Between 2014 and 2016, mergers in the generic space jumped from $1.86 billion to $44 billion. Teva bought Actavis. Mylan bought Merck’s generic division. Viatris was born from the merger of Mylan and Upjohn.

But consolidation didn’t bring stability. It brought fewer players - and more pressure on the remaining ones. When only five companies make a drug, they still can’t raise prices. PBMs and insurers still demand the lowest bid. The savings go to patients and insurers, not manufacturers.

Even worse, big mergers often mean layoffs, plant closures, and supply chain disruptions. When Viatris sold its biosimilars unit to Biocon and its OTC arm to another company, it streamlined operations - but also reduced its ability to diversify. The strategy worked for balance sheets, but not for resilience.

The Global Divide: Who’s Winning?

Profitability isn’t the same everywhere. In the U.S., the PBM system is the main villain. PBMs negotiate rebates from manufacturers based on list prices. But they don’t pass those savings to patients. Instead, they keep a cut. Manufacturers get squeezed between lower wholesale prices and higher rebate demands.

In Europe, pricing is more regulated. Governments set prices based on therapeutic value, not just cost. That means margins are higher - but growth is slower. In India and China, manufacturers benefit from lower labor and raw material costs. They’re becoming the world’s suppliers. But they face their own risks: currency swings, export restrictions, and environmental regulations.

The real opportunity? Emerging markets. Countries like Brazil, Indonesia, and Nigeria are expanding access to generics. But building a presence there takes time, local partnerships, and patience. It’s not a quick fix.

The Path to Sustainability

So how do generic manufacturers survive? It’s not about cutting costs anymore. It’s about changing what you sell.

• Move away from commodity generics. If you’re still betting on 10-cent pills, you’re betting on a dying business.
• Invest in complex generics. That means hiring formulation scientists, upgrading labs, and building expertise in delivery systems - not just filling capsules.
• Consider contract manufacturing. If you have the facilities, why not rent them out? It’s steady income with less regulatory risk.
• Focus on niche markets. Drugs for rare diseases, pediatric formulations, or needle-free delivery systems have fewer competitors and higher margins.

Teva’s pivot is telling. In 2024, it spent $998 million on R&D - up 5% from the year before - targeting immunology, neuroscience, and biosimilars. That’s not the strategy of a company clinging to the past. It’s the move of one trying to rebuild.

The industry’s future isn’t in making more pills. It’s in making better ones. Ones that are harder to copy. Ones that need real science. Ones that can’t be bid down to pennies.

What’s Next for Generic Drugs?

By 2033, the global generic drug market is projected to hit $600 billion. Why? Because dozens of blockbuster brand drugs are losing patents between now and then. Drugs like Humira, Eliquis, and Keytruda will go generic. That’s a $100+ billion opportunity.

But only companies with the right model will capture it. Those still stuck in commodity production will get crushed. Those investing in complex formulations, supply chain control, and contract services will thrive.

The public needs affordable drugs. That’s not going away. But the manufacturers who survive won’t be the cheapest. They’ll be the smartest.