Generic drugs are non-branded drugs that are marketed once the patent on a branded drug has expired.
When a pharmaceutical company first develops a drug, it applies for a patent. This means that only the company that has developed the original molecule can manufacture and market the drug during its patent protection period. Once the patent protection expires after a fixed number of years, other pharmaceutical companies are then allowed to also manufacture the drug. At this point, the drug is referred to as a generic drug.
This generic drug must contain the same active ingredient as the original branded formulation, as well as being similar or “bioequivalent” in terms of dosage and performance. Bioequivalence between the two drugs means there is either no significant difference between them in terms of the rate and extent of absorption or if there is a difference, it is either intended or not medically significant.
Due to the competitive nature of the drug market, once the generic drug is available, the cost of both the original branded product and the generic drug are significantly lowered. Generic drugs have saved millions of dollars in healthcare costs, benefitting both patients and insurance companies. The cost of the drug is driven down by increasing competition between pharmaceutical companies to produce the drug and make it available for the lowest possible price.
The generic drug incurs only manufacturing costs, rather than the cost of researching, testing and developing the agent and profits can therefore still be gained by selling the drug at a lower price. In some cases, all that is required is reverse-engineering and bioequivalence of the existing drug can be achieved. Generic drug production also does not require safety and efficacy studies, since this information has already been obtained by the original manufacturer.
Furthermore, generic manufacturers save on marketing costs because many of the drugs have already been marketed through the media and drug representatives and are already well known to patients and consumers.