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Contents |
Reasons for cheaper price
The principal reason for the reduced price of generic medicines is that these companies incur less costs in creating the generic drug and are therefore able to offer a lower price and still maintain profitability.
Manufacturers of generic drugs are mainly able to avoid the following three costs that brand name pharmaceutical companies incur: (1) costs associated with the research and development of the drug; (2) costs associated with the navigating governmental bureaucracy for getting a drug onto the market as safe and effective; and (3) marketing costs.
First, Generic manufacturers do not have to incur the costs of searching and finding a new drug to treat an illness because they have access to adequate information regarding the brand name drug to allow them to manufacture a bioequivalent version of the brand name drug that will do the same thing.
Second, generic manufacturers do not have to prove that their product is safe and effective through clinical trials, only that their drug is bioequivalent.
Third, these companies receive the large benefit of the marketing that goes into pushing the innovator drug. The drugs that generic manufacturers are selling have been on the market for usually a decade or more and do not need additional advertising. For the same reason, generic manufacturers also do not give away sample doses to promote their products. The significant research and development and marketing costs incurred by the large pharmaceutical companies in bringing a new drug to the market is often cited as the reason for the high cost of new agents - they wish to recover these costs before the patent expires. Generic manufacturers do not incur these costs, with bioequivalence testing and the actual manufacturing process costing relatively little, and are able to charge significantly less than the "innovator" brand.
When can a generic drug be produced
Generic drugs can be legally produced for drugs where: 1) the patent has expired, 2) the generic company certifies the brand company's patents are either invalid, unenforceable or will not be infringed, 3) for drugs which have never held patents, or 4) in countries where a patent(s) is/are not in force. The expiration of a patent removes the monopoly of the patent holder on drug sales licensing. It is also becoming popular for the large pharmaceutical companies to preempt the expiry of their patent by producing their own generic product, or license their own product to be branded by generic companies. Thus, in some cases, the "generic" product is actually the brand product but inside a different box.
Enacted in 1984, the U.S. Drug Price Competition and Patent Term Restoration Act, informally known as the "Hatch-Waxman Act", standardized U.S. procedures for recognition of generic drugs. An applicant files an Abbreviated New Drug Application (or "ANDA") with the Food and Drug Administration (FDA) and seeks to demonstrate therapeutic equivalence to a specified, previously approved "reference listed drug." When an ANDA is approved, the FDA adds the drug to its Approved Drug Products list, also known as the "Orange Book", and annotates the list to show equivalence between the reference listed drug and the approved generic. The FDA also recognizes drugs using the same ingredients with different bioavailability and divides them into therapeutic equivalence groups. For example, as of 2006 diltiazem hydrochloride had four equivalence groups all using the same active ingredient but considered equivalent only within a group. For an explanation of FDA terms and procedures, see "Approved Drug Products with Therapeutic Equivalence Evaluations, Preface."
Patent lifetime and research cost issues
Pharmaceutical companies may produce a generic drug when the patent expires on the innovator drug. Patent lifetime differs from country to country. The length of time before a patent expires varies for different drugs. Usually, there is no way to renew a patent after it expires. A new version of the drug with significant changes to the compound could be patented but this will require new clinical trials and will not prevent the generic versions of the original drug. Usually, generic drugs are much less expensive than the brand-name product. Some patients and physicians will hesitate to select these medications because of concerns about the quality of generic drugs. When a pharmaceutical company first markets a drug, it is usually under a patent that allows only the pharmaceutical company that developed the drug to sell it. This allows the company to recoup the cost of developing that particular drug. It costs on average around $800,000,000 to develop and test a new drug before it is approved for use. After the patent on a drug expires, any pharmaceutical company can manufacture and sell that drug. Since the drug has already been tested and approved, the cost of simply manufacturing the drug will be a fraction of the original cost of testing and developing that particular drug. The brand-name drug companies have tended to litigate aggressively to extend patent protection on their medicines and keep generic versions off the market, a process referred to by critics as "evergreening."
Ensuring bioequivalence
In the USA the Food and Drug Administration (FDA) is responsible for making sure that generic drugs are "safe and effective." The approval process for generic drugs began in the late 1960s. Generic drug manufacturers were required to prove that their formulation exhibits bioequivalence to the innovator product. Over the past several years there have been studies that have shown the effectivness and safety of some generic drugs. Generic drugs are always less expensive and can save patients and insurance companies thousands of dollars supposedly without compromising the quality of care. The FDA must approve generic drugs just as innovator drugs must be approved. Bioequivalence, however, does not mean that generic drugs are exactly the same as their innovator product counterparts, as chemical differences do exist. Some doctors and patients emphatically believe that certain generic drugs are not as effective as the products they are meant to replace (ie. Prozac, Oxycontin), and consumers would undoubtedly benefit from more clinical studies done on drug by drug basis.
180 Day Generic Drug Exclusivity
The US FDA offers a 180 day exclusivity period to generic drug manufacturers in specific cases. During this period only one (or sometimes a few) generic manufacturers can produce the generic version of a drug. This exclusivity period is only used when a generic manufacturer argues that a patent is invalid or is not violated in the generic production of a drug, and the period acts as a reward for the generic manufacturer who is willing to risk liability in court and the cost of patent court litigation. There is often contention around these 180 day exclusivity periods because a generic producer does not have to produce the drug during this period and can file an application first to prevent other generic producers from selling the drug.
Large pharmaceutical companies often spend thousands of dollars protecting their patents from generic competition. Apart from litigation, companies use other methods such as reformulation or licensing 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; they are not affected by the 180 day exclusivity period as they fall under the patent holder's original drug application.
A prime example of how this works is simvastatin (Zocor), a popular drug created and manufactured by U.S. based pharmaceutical Merck & Co., which lost its US patent protection on June 23, 2006. India-based Ranbaxy Laboratories (at the 80-mg strength) and Israel-based Teva Pharmaceutical Industries (at all other strengths) received 180 day exclusivity periods for simvastatin; due to Zocor's popularity, both companies began marketing their products immediately after the patent expired. However, Dr. Reddy's Laboratories also markets an authorized generic version of simvastatin under license from Zocor's manufacturer, Merck & Co.; some packages of Dr. Reddy's simvastatin even show Merck as the actual manufacturer and have Merck's logo on the bottom.
Further reading
Fighting generic competition: strategies for research-based companies, Urch Publishing[1]
