When patent protection expires on a drug, a bioequivalent version may be sold as a “generic” version of the brand name drug, typically at a significant discount below the brand name. The utility of these products is considered to be the same as that of the original brand name.
Today, nearly 9 in 10 prescriptions filled in the United Kingdom are for generic drugs. The use of generic drugs is expected to grow over the next few years as a number of popular drugs come off patent through 2018.
A study evaluated the results of 38 published clinical trials that compared cardiovascular generic drugs to their brand name counterparts. There was no evidence that brand name heart drugs worked any better than generic heart drugs.
A generic drug is a pharmaceutical drug that is equivalent to a brand-name product in dosage, strength, route of administration, quality, performance, and intended use. The term may also refer to any drug marketed under its chemical name without advertising, or to the chemical makeup of a drug rather than the brand name under which the drug is sold.
In most cases, generic products become available after the patent protections afforded to a drug’s original developer expire. Once generic drugs enter the market, competition often leads to substantially lower prices for both the original brand-name product and its generic equivalents. In most countries, patents give 20 years of protection. However, many countries and regions, such as the European Union and the United States, may grant up to five years of additional protection (“patent term restoration”) if manufacturers meet specific goals, such as conducting clinical trials for pediatric patients. Manufacturers, wholesalers, insurers, and drugstores can each increase prices at various stages of production and distribution.
When a pharmaceutical company first markets a drug, it is usually under a patent that, until it expires, the company can use to exclude competitors by suing them for patent infringement. Pharmaceutical companies that develop new drugs generally only invest in drug candidates with strong patent protection as a strategy to recoup their costs to develop the drug (include the costs of the drug candidates that fail) and to make a profit. The average cost to a brand-name company of discovering, testing, and obtaining regulatory approval for a new drug, with a new chemical entity, was estimated to be as much as $800 million in 2003 and $2.6 billion in 2014. Drug companies that bring new products have several product line extension strategies they use to extend their exclusivity, some of which are seen as gaming the system and referred to by critics as “evergreening”, but at some point there is no patent protection available. For as long as a drug patent lasts, a brand-name company enjoys a period of market exclusivity, or monopoly, in which the company is able to set the price of the drug at a level that maximizes profit. This profit often greatly exceeds the development and production costs of the drug, allowing the company to offset the cost of research and development of other drugs that are not profitable or do not pass clinical trials.
Large pharmaceutical companies often spend millions of dollars protecting their patents from generic competition. Apart from litigation, they may reformulate a drug or license a subsidiary (or another company) to sell generics under the original patent. Generics sold under license from the patent holder are known as authorized generics.
Generic drugs are required to have the same active ingredient, strength, dosage form, and route of administration as the brand name product. Generic drugs do not need to contain the same inactive ingredients as the brand name product.
When a generic drug product is approved, it has met rigorous standards established by the FDA with respect to identity, strength, quality, purity, and potency. However, some variability can and does occur during manufacturing, for both brand name and generic drugs. When a drug, generic or brand name, is mass-produced, very small variations in purity, size, strength, and other parameters are permitted. FDA limits how much variability is acceptable.
Generic drugs are usually sold for significantly lower prices than their branded equivalents and at lower profit margins. One reason for this is that competition increases among producers when a drug is no longer protected by patents. Generic companies incur fewer costs in creating generic drugs—only the cost of manufacturing, without the costs of drug discovery and drug development—and are therefore able to maintain profitability at a lower price. The prices are often low enough for users in less-prosperous countries to afford them.
The generic drug manufacturer must prove its drug is the same as (bioequivalent) the brand name drug. For example, after the patient takes the generic drug, the amount of drug in the bloodstream is measured. If the levels of the drug in the bloodstream are the same as the levels found when the brand name product is used, the generic drug will work the same.
Generic drug companies may also receive the benefit of the previous marketing efforts of the brand-name company, including advertising, presentations by drug representatives, and distribution of free samples. Many drugs introduced by generic manufacturers have already been on the market for a decade or more and may already be well known to patients and providers, although often under their branded name.
Through review of bioequivalence data, FDA ensures that the generic product performs the same as its respective brand name product. This standard applies to all generic drugs, whether immediate or controlled release.
FDA recently evaluated 2,070 human studies conducted between 1996 and 2007. These studies compared the absorption of brand name and generic drugs into a person’s body. These studies were submitted to FDA to support approval of generics. The average difference in absorption into the body between the generic and the brand name was 3.5 percent. Some generics were absorbed slightly more, some slightly less. This amount of difference would be expected and acceptable, whether for one batch of brand name drug tested against another batch of the same brand, or for a generic tested against a brand name drug. In fact, there have been studies in which brand name drugs were compared with themselves as well as with a generic. As a rule, the difference for the generic-to-brand comparison was about the same as the brand-to-brand comparison.
In the United Kingdom, generic drug pricing is controlled by the government’s reimbursement rate. The price paid by pharmacists and doctors is determined mainly by the number of license holders, the sales value of the original brand, and the ease of manufacture. A typical price decay graph will show a “scalloped” curve, which usually starts at the brand-name price on the day of generic launch and then falls as competition intensifies. After some years, the graph typically flattens out at approximately 20% of the original brand price. In about 20% of cases, the price “bounces”: Some license holders withdraw from the market when the selling price dips below their cost of goods, and the price then rises for a while until the license holders re-enter the market with new stock.
All generic manufacturing, packaging, and testing sites must pass the same quality standards as those of brand name drugs, and the generic products must meet the same exacting specifications as any brand name product. In fact, many generic drugs are made in the same manufacturing plants as brand name drug products.
Generic manufacturers are able to sell their products for lower prices because they are not required to repeat the costly clinical trials of new drugs and generally do not pay for costly advertising, marketing, and promotion. In addition, multiple generic companies are often approved to market a single product; this creates competition in the market place, often resulting in lower prices.
In In 2012, 84% of prescriptions in the US were filled with generic drugs, and in 2014, the use of generic drugs in the United States led to $254 billion in health care savings.
Due to the lack of promotion, generic brands are priced lower than branded products. They are preferred by customers for whom price or value-for-money is the priority. 64% of consumers agreed with the statement “Brand names are not better quality”.