Generic drugs or medicines become available only after a rigorous review by FDA and after a set period of time that the brand-name version has been on the market exclusively. This is because new drugs, like other new products, are usually protected by patents that prohibit others from making and selling copies of the same drug. The patent protects the company’s investment in the drug’s development by giving the company the sole right to sell the drug while the patent is in effect. Because it takes such a long time to bring a new drug to market, this period of exclusivity allows drug companies to recoup the costs associated with bringing a new drug to market. FDA also grants certain periods of marketing exclusivity to brand-name drugs that can prohibit the approval of generic drugs. Once these patents and marketing exclusivities expire (or if the patents are successfully challenged by the generic drug company), the generic drug can be approved.
Generic drugs also tend to cost less than their brand-name counterparts because generic drug applicants do not have to repeat animal and clinical (human) studies that were required of the brand-name medicines to demonstrate safety and effectiveness. This is why the application is called an “abbreviated new drug application.” This, together with competition between the brand-name drug and multiple generic drugs, is a large part of the reason generic medicines cost much less.
In fact, multiple generic companies are often approved to market a single product; this creates competition in the marketplace, typically resulting in lower prices.
The reduction in upfront research costs means that, although generic medicines have the same therapeutic effect as their branded counterparts, they are typically sold at substantial discounts, an estimated 80 to 85% less, compared with the price of the brand-name medicine. According to the IMS Health Institute, generic drugs saved the U.S. healthcare system $1.67 trillion from 2007 to 2016.
