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.
Although they may not be associated with a particular company, generic drugs are subject to government regulations in the countries where they are dispensed. They are labeled with the name of the manufacturer and the nonproprietary adopted name of the drug. A generic drug must contain the same active ingredients as the original brand-name formulation. The U.S. Food and Drug Administration (FDA) requires that generics be identical to, or within an acceptable bioequivalent range of, their brand-name counterparts with respect to pharmacokinetic and pharmacodynamic properties. (The FDA's use of the word "identical" is a legal interpretation, not literal.)
Biopharmaceuticals such as monoclonal antibodies differ biologically from small molecule drugs. Generic versions of these drugs, known as biosimilars, are typically regulated under an extended set of rules.
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.
In 2014, according to an analysis by the Generic Pharmaceutical Association, generic drugs accounted for 88% of the 4.3 billion prescriptions filled in the United States.:2
Generic drug names are constructed using standardized affixes that distinguish drugs between and within classes and suggest their action.
Generic drugs are usually sold for significantly lower prices than their branded equivalents. One reason for this is that competition increases among producers when a drug is no longer protected by patents. Companies incur fewer costs in creating generic drugs—only the cost of manufacturing, without the costs of development and testing—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. For example, Thailand has imported millions of doses of a generic version of the blood-thinning drug Plavix (used to help prevent heart attacks) from India, the leading manufacturer of generic drugs, at a cost of 3 US cents per dose.
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.
Generic manufacturers do not incur the cost of drug discovery; rather, they may use reverse engineering to develop bioequivalent versions of existing drugs. Generic manufacturers also do not bear the burden of proving the safety and efficacy of drugs through clinical trials, since these trials have already been conducted by the brand-name company. (See the Approval and regulation section, below, for more information about the approval process.) 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.
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.
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. The advantage of generic drugs to consumers comes with the introduction of competition, which prevents any single company from dictating the market price of the drug. Competition is also seen between generic and name-brand drugs with similar therapeutic uses when physicians or health plans preferentially prescribe generics, as in step therapy. When multiple companies produce generic versions of a drug, the profit-maximizing price generally falls to the ongoing cost of producing the drug, which is usually much lower than the monopoly price.
In 2014, the use of generic drugs in the United States led to $254 billion in health care savings.:2
Bioequivalence does not mean generic drugs must be exactly the same as the brand-name product ("pharmaceutical equivalent"). Chemical differences may exist; a different salt or ester may be used, for instance. However, the therapeutic effect of the drug must be the same ("pharmaceutical alternative"). Most small molecule drugs are accepted as bioequivalent if their pharmacokinetic parameters of AUC (area under concentration) and Cmax (maximum concentration) are within a 90% confidence interval of 80–125%; most approved generics are well within this limit. For more complex products—such as inhalers, patch delivery systems, liposomal preparations, or biosimilar drugs—demonstrating pharmacodynamic or clinical equivalence is more challenging.
When a pharmaceutical company first markets a drug, it is usually under a patent that, until it expires, allows only the company that developed the drug (or its licensees) to sell it. In the United States, patent extensions may be granted if novel and beneficial changes are made to the formulation of a drug. A new version of a drug with significant changes to the compound may be patented, but requires new clinical trials. In addition, a patent on a changed compound does not prevent sales of generic versions of the original drug unless regulators take the original off the market, as happened in the case of terfenadine.
The Patient Protection and Affordable Care Act, which President Barack Obama signed on March 23, 2010, authorized the Food and Drug Administration to approve generic versions of biopharmaceuticals and to grant brand-name manufacturers 12 years of exclusive use before generics can be developed.
Brand-name pharmaceutical companies use a number of strategies to extend the period of market exclusivity on their drugs and prevent generic competition. This may involve aggressive litigation to preserve or extend patent protection, a process referred to by critics as "evergreening". Patents are typically issued on novel pharmacological compounds early in the drug development process, at which time the clock to patent expiration begins ticking. Later in the process, drug companies may seek new patents for specific forms of these compounds, such as single enantiomers of drugs that can exist in both "left-handed" and "right-handed" forms, different inactive components in a drug salt, or a specific hydrate form of a drug salt. If granted, these patents reset the clock. However, they may later be targeted for invalidation ("paragraph IV certification") by generic drug manufacturers.
The FDA offers a 180-day exclusivity period to generic drug manufacturers in specific cases. During this period, only one (or sometimes a few) manufacturers can produce generic versions of a drug. Such exclusivity may be granted when a generic manufacturer argues that a patent is invalid or is not violated by the production of a generic drug; it serves as a reward for the generic manufacturer for risking legal liability and the cost of patent court litigation. There is often contention around these exclusivity periods because a generic producer that receives one does not have to actually produce the drug during the period, and can file an application first to prevent other generic producers from selling it.
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.
An example of this process is simvastatin (Zocor), a popular cholesterol-lowering drug created by Merck & Co. Zocor lost its patent protection on June 23, 2006, and two companies received 180-day exclusivity periods to produce generic versions: India-based Ranbaxy Laboratories (for the 80 mg strength) and Israel-based Teva Pharmaceutical Industries (for all other strengths). Because of 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 Merck; some packages of Dr. Reddy's simvastatin even show Merck as the manufacturer and have Merck's logo on the bottom.
Enacted in 1984, the Drug Price Competition and Patent Term Restoration Act, informally known as the Hatch-Waxman Act, standardized procedures for recognition of generic drugs. An applicant files an Abbreviated New Drug Application (ANDA) with the Food and Drug Administration, seeking to demonstrate therapeutic equivalence to a previously approved "reference-listed drug". When an application is approved, the FDA adds the generic drug to its Approved Drug Products with Therapeutic Equivalence Evaluations list and annotates the list to show equivalence between the reference-listed drug and the generic. The FDA also recognizes drugs that use 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 each group.
On October 4, 2007, the FDA launched the Generic Initiative for Value and Efficiency (GIVE): an effort to modernize and streamline the generic drug approval process, and to increase the number and variety of generic products available.
Generic drug substances are named based on the recommendations of the United States Adopted Names (USAN) Council.
The FDA requires the bioequivalence of a generic drug to be between 80% and 125% of the innovator product. (This range is part of a statistical calculation, and does not mean that generic drugs are allowed to differ from their brand-name counterparts by up to 25 percent.) The FDA evaluated 2,070 studies conducted between 1996 and 2007 that compared the absorption of brand-name and generic drugs into a person’s body. The average difference in absorption between the generic and the brand-name drug was 3.5 percent, comparable to the difference between two batches of a brand-name drug.
Some generic drugs are viewed with suspicion by doctors. For example, warfarin (Coumadin) has a narrow therapeutic window and requires frequent blood tests to make sure patients do not have a subtherapeutic or a toxic level. A study performed in Ontario showed that replacing Coumadin with generic warfarin was safe, but many physicians are not comfortable with their patients taking branded generic equivalents. In some countries (for example, Australia) where a drug is prescribed under more than one brand name, doctors may choose not to allow pharmacists to substitute a brand different from the one prescribed unless the consumer requests it.
Generic versions of biologic drugs, or biosimilars, require clinical trials for immunogenicity in addition to tests establishing bioequivalency. These products cannot be entirely identical because of batch-to-batch variability and their biological nature, and they are subject to extra rules.
In 2007, North Carolina Public Radio's The People's Pharmacy began reporting on consumers' complaints that generic versions of bupropion (Wellbutrin) were yielding unexpected effects. Subsequently, Impax Laboratories's 300 mg extended-release tablets, marketed by Teva Pharmaceutical Industries, were withdrawn from the US market after the FDA determined in 2012 that they were not bioequivalent.
Two women, each claiming to have suffered severe medical complications from a generic drug, lost their Supreme Court appeal on June 23, 2011. In a 5-4 ruling, the justices found that generic drug companies do not share the same level of responsibility as makers of brand-name equivalents and do not have to update their warning labels when significant new risks emerge.
The Indian government began encouraging more drug manufacturing by Indian companies in the early 1960s, and with the Patents Act in 1970. The Patents Act removed composition patents for foods and drugs, and though it kept process patents, these were shortened to a period of five to seven years. The resulting lack of patent protection created a niche in both the Indian and global markets that Indian companies filled by reverse-engineering new processes for manufacturing low-cost drugs. Mumbai, India headquartered Sun Pharmaceutical’s consolidated revenues for the 12 months ending March 2015 are US$ 4.5 billion. 
Generic drug production is a large part of the pharmaceutical industry in China. Western observers have said that China lacks administrative protection for patents. However, entry to the World Trade Organization has brought a stronger patent system.
- Anti-Counterfeiting Trade Agreement#Criminalising generic medicine (ACTA)
- Bayh–Dole Act
- Chemical patents
- Generic brand
- International Nonproprietary Name
- Inverse benefit law
- Prescription costs
- Research exemption
- SOPA#Protection against counterfeit drugs
- Trans-Pacific Partnership Intellectual Property Provisions
- Transatlantic Trade and Investment Partnership
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