How Generic Drugs Work

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Introduction to How Generic Drugs Work

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About half of all prescriptions are
filled with generic drugs.

About half of all prescriptions are filled with a generic equivalent of a brand-name drug. Most of us have been asked if we want a generic alternative to our brand-name medication. Because of the decrease in price, most of us will agree to this switch, figuring that the generic must be as good as the brand-name drug. But is this true? And if so, why are they so much cheaper than brand-name drugs?

Let's begin with a simple definition of a generic drug. Any drug identified as a generic equivalent of a brand-name medication has a similar chemical or drug formulation that acts on the body with the same strength and absorption process of the brand-name drug. So, the generic medication is the bioequivalent of the brand-name drug. The generic drug also must be equal in safety, strength, route of administration (pill, liquid, etc.), quality, performance and have the same intended use as its brand-name equivalent.

So if the generic version has the exact same effect on the body as the brand-name version, what is the advantage of generic drugs? One word: price.

The congressional budget office estimates that consumers save nearly $10 billion a year by using generic drugs. You might get the popular antidepressant Prozac each month for a $40 co-pay, but you could have its generic equivalent (fluoxetine hydrochloride) for a $10 co-pay, saving you $360 a year.

Why are generic drugs so much cheaper than their brand-name counterparts? The main reason is that companies producing the generic versions of a brand-name drug have much lower overhead costs than the original creators of the drug. This is because the creation of a drug can take many years, along with many millions of dollars. Once a company creates the drug, it must conduct expensive clinical trials to ensure the drug's safety and efficacy. So, by the time the FDA approves a brand-name drug, the drug company has already spent millions -- and then it has to market the drug to the public, pharmacies, health insurance plans and health care practitioners. The total cost can rise into the billions by the time the drug is in the hands of the consumers.

Why Stick with the Brand Name?
If generic drugs are cheaper than their brand-name counterparts but have the same safety, effectiveness and active ingredients, why do people still take brand-name drugs?

Basically, it's marketing. If the drug company can convince the average patient that the generic is the "cheap" version and that they deserve the best, many patients buy it. Also, if a patient is finally on a drug that works, he might be less likely to switch to the generic version for fear of losing the effect of the drug. And there are inactive ingredients in generic drugs that can be different from those in the brand-name drug. They don't affect the way the drug works, but they can make it look and taste different, making people wonder if the cheaper drug has left something out.

In an effort to earn back as much of this money as possible, brand-name drug companies will charge a premium amount for their drug while they have a monopoly on producing and selling it. Generic drug companies, on the other hand, are paying only for the production of the medication, so they can afford to set low prices. The first generic version of a brand-name drug lowers the price of the drug dramatically, but the largest price reduction occurs when the second generic version hits the market.

So, how soon after one company introduces a drug can another manufacturer make a generic equivalent? And how do they do it? Let's find out.

Generic Drug Production

Before a company can make a generic drug, its bioequivalent brand-name counterpart must have been created, approved and distributed. While a pharmaceutical company is making a new brand-name drug, a patent ensures that company may develop, manufacture and sell the drug for a certain amount of time. Patent time frames vary, and in most situations, a patent cannot be renewed after it expires. In the United States, an average drug patent lasts for 17 years.

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Once the patent for a brand-name drug expires, other companies
can produce generic versions.

Once the patent expires, other companies can produce generic versions. To start the process, drug manufacturers file an Abbreviated New Drug Application (ANDA) with the FDA. But before the FDA approves the application, the generic drug must meet the same standards that the original brand-name drug met. According to the Drug Price Competition and Patent Term Restoration Act of 1984 (the Hatch-Waxman Act), bioequivalence is the main basis for approval of generic drugs. The generic drug must contain the same active ingredients, have identical strength and form and have a similar route of administration as the brand-name drug. The generic drug must also be used for the same ailments that the brand-name drug is used.

Does your favorite brand-name drug have a generic equivalent?
Your doctor or pharmacist will know if there is a generic version of the drug you need. But if you want to see for yourself, check out the Electronic Orange Book.

The FDA may also perform a plant inspection to make sure that the company is safely producing the generic form of the drug. A labeling review then ensures that the information sent out with the generic equivalent includes all necessary information for the consumer. When and if the company meets all these standards, the ANDA is approved and the FDA adds the generic drug to its Approved Drug Products list, which is referred to as the "Orange Book."

For more information on generic drugs, check out the links on the next page.

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How Generic Drugs Work