Generic drugs are the backbone of affordable healthcare. They make up 90% of prescriptions filled in the U.S., yet they only cost 10% of what brand-name drugs do. That sounds like a win - until you realize that many generic manufacturers are losing money just to keep making them. In 2025, Teva Pharmaceutical reported a loss of $174.6 million despite $3.8 billion in revenue. Meanwhile, companies like Mylan (now Viatris) barely scraped by with a 4.3% profit margin. How is that possible? And more importantly - how can generic drug makers survive?
The Price Collapse of Commodity Generics
The old model was simple: a drug patent expires, dozens of companies rush to make the same pill, and prices plummet. It used to be that a generic version of a popular drug could sell for 50-60% less than the brand. Now? It’s often 90% less. Some pills cost less than a dollar per dose. When you’re selling a 30-day supply for $5 and your manufacturing cost is $4.50, there’s no room for error.That’s the reality for commodity generics - simple, off-patent drugs like metformin, lisinopril, or amoxicillin. These are the workhorses of the industry, but they’re also the biggest money losers. With over 16,000 generic drugs on the market and hundreds of manufacturers competing for each one, there’s no pricing power. If you raise your price by 5 cents, customers switch to the next cheapest supplier. That’s not competition - it’s a race to the bottom.
The result? Gross margins have dropped from 50-60% in the 2000s to under 30% today. For some, they’re below 10%. That’s not sustainable. It’s why thousands of small manufacturers have shut down. It’s why shortages of essential medicines - like insulin, antibiotics, or chemotherapy drugs - are becoming more common. As Dr. Aaron Kesselheim from Harvard put it: “The market failure isn’t that generics are expensive. It’s that they’re too cheap to make.”
The Three Paths to Survival
Not all generic manufacturers are failing. Some are thriving. And they’re doing it by abandoning the old model entirely. Three new business models are emerging - and they’re reshaping the entire industry.1. Complex Generics
These aren’t your ordinary pills. They’re drugs that are hard to copy. Think inhalers with precise dosing, injectables that require sterile environments, or extended-release tablets that release medicine slowly over 12 hours. These require advanced formulation, specialized equipment, and deep regulatory knowledge. Only a handful of companies can make them. And because there are fewer competitors, prices stay higher. Margins? 40-60%. That’s where companies like Teva are betting big. Their 2024 growth came mostly from specialty generics like Austedo XR and lenalidomide - complex drugs for neurological and cancer conditions.
2. Contract Manufacturing (CMOs)
Instead of making their own brands, some companies now make drugs for others. They rent out their factories, labs, and regulatory teams. A brand-name company doesn’t want to build a new plant? Hire a CMO. A startup needs help scaling production? Outsource it. This segment is growing at nearly 10% a year. By 2030, it’ll be worth over $90 billion globally. Companies like Egis Pharmaceuticals are launching dedicated CMO divisions. Why? Because it’s more stable than trying to sell under your own label in a price-war market.
3. Strategic Consolidation
You can’t compete with 200 other companies making the same generic. So you buy them. That’s what happened in the 2010s. Mergers exploded from $1.86 billion in 2014 to $44 billion by 2016. Viatris was born from the merger of Mylan and Upjohn. Teva bought Allergan’s generic division. The goal? Reduce competition, cut duplicate costs, and control more of the supply chain. But it’s not just about size - it’s about focus. Viatris sold off its biosimilars unit and OTC business to double down on core generics. Teva cut 15% of its workforce to fund R&D for complex products. Survival isn’t about being the biggest. It’s about being the smartest.
The Hidden Costs of Making Generics
Making a generic drug sounds easy. But the real cost isn’t the pill. It’s everything behind it.First, there’s the FDA approval. Each ANDA (Abbreviated New Drug Application) costs an average of $2.6 million to file and get approved. That’s not a one-time fee - it’s a recurring cost for every new product. Then there’s the factory. Building a cGMP-compliant facility? That’s $100 million minimum. And that’s just to start. You need ongoing audits, staff training, quality control, and raw material sourcing. Prices for active pharmaceutical ingredients (APIs) swing wildly - sometimes doubling overnight due to geopolitical issues or supply chain hiccups.
And then there’s time. It takes 18 to 24 months just to get your first product approved and into pharmacies. During that time, you’re spending money with no revenue. And even then, 65% of new entrants focusing only on commodity generics fail to break even. That’s why most new players are either backed by big pharma, or they’re skipping the retail market entirely and going straight into contract manufacturing.
Regional Differences - It’s Not All the Same
Profitability isn’t global. It’s regional.In the U.S., PBMs (pharmacy benefit managers) hold all the power. They negotiate discounts with manufacturers, then pass the savings to insurers - but often keep a cut. That means manufacturers are forced to slash prices even further to get on formularies. The result? A race to the lowest possible bid. Europe is different. Governments set prices. There’s still competition, but not the same cutthroat bidding. Margins are higher. In India and China, production costs are lower, so even cheap generics can be profitable - but regulatory risks and currency swings make it unpredictable.
The real opportunity? Emerging markets. As populations age and healthcare systems expand in Southeast Asia, Latin America, and Africa, demand for affordable drugs is skyrocketing. But you can’t just export U.S.-made generics. You need local manufacturing, local regulatory approval, and local distribution. That’s why companies like Cipla and Sun Pharma are expanding aggressively overseas - not just to sell, but to build.
The Future: Sustainable or Sinking?
The industry is at a crossroads. On one hand, patent cliffs are coming. Over 50 blockbuster drugs will lose exclusivity between 2025 and 2033 - including Humira, Eliquis, and Keytruda. That’s a $600 billion market waiting to be unlocked. On the other hand, the old model is broken. You can’t make money on $1 pills anymore.The winners will be those who avoid the commodity trap. They’ll focus on complex formulations. They’ll partner with brands as contract manufacturers. They’ll build global supply chains instead of competing in U.S. auctions. They’ll invest in automation, AI-driven quality control, and sustainable packaging.
But here’s the real question: Can the system survive if the makers can’t profit? If no one can make insulin affordably, who fills the gap? If antibiotics disappear because they’re too cheap to produce, who pays the price? The answer isn’t just business strategy - it’s policy. Banning “pay-for-delay” deals could save $45 billion over 10 years. Creating incentives for manufacturers to produce essential but low-margin drugs could prevent shortages. The societal value of generics is clear. The challenge is making sure the business side doesn’t collapse under its own weight.
Why are generic drug prices so low?
Generic drug prices are low because of intense competition after a brand-name drug’s patent expires. Hundreds of manufacturers enter the market, all producing the same drug. Since the drugs are chemically identical, buyers - like pharmacies and insurers - choose based on price alone. This forces manufacturers to slash prices to win contracts, often down to just a few cents per pill. The system works for consumers, but it leaves little room for profit.
Can generic drug companies still make money?
Yes - but only if they change their model. Companies that stick to simple, high-volume generics are losing money. The profitable ones focus on complex generics (like inhalers or extended-release pills), contract manufacturing for other companies, or entering high-growth international markets. Margins on complex products can reach 40-60%, while contract manufacturing offers steady, predictable revenue without the risk of price wars.
What’s the difference between a commodity generic and a complex generic?
A commodity generic is a simple pill - like metformin or ibuprofen - that’s easy to copy and has hundreds of manufacturers. A complex generic is harder to produce: think injectables, inhalers, or drugs that release medicine slowly over time. These require advanced technology, strict quality controls, and specialized facilities. Fewer companies can make them, so competition is lower and prices stay higher.
Why are generic drug shortages happening?
Shortages occur because manufacturers can’t profitably produce certain drugs. When a generic drug sells for less than the cost to make it - including raw materials, labor, and regulatory compliance - companies stop making it. This is especially common for older drugs with low margins, like antibiotics or chemotherapy agents. The problem isn’t lack of demand - it’s lack of incentive to produce.
How do contract manufacturers make money in generics?
Contract manufacturers (CMOs) don’t sell their own brands. Instead, they rent out their facilities and expertise to other companies - including big pharma, biotech startups, and generic makers. They charge fees for production, packaging, and regulatory support. This model is more stable than selling under your own label because it’s not subject to price wars. With global demand rising, CMOs are one of the fastest-growing parts of the generics industry.