Generic vs. Name Brand Drugs

Generic vs. Name Brand Drugs

Many healthcare consumers are familiar with generic drugs, but some may not realize the intense debate that has taken place in recent years concerning the manner in which generic drug manufacturers are able to provide these medicines at a fraction of the price charged by brand-name manufacturers. Pioneer drug manufacturers incur enormous research and development costs in bringing their brand-name medicines to market but only have 20 years to recoup their investment before their patents expire at which time generic drug manufacturers can use their research and clinical findings to obtain federal approval for their own versions. Moreover, just a fraction of the drugs that are researched ever make it to the clinical trial stage for testing, and even fewer of these actually generate any profits for the brand-name manufacturers. Nevertheless, given the escalating costs of medicine and a rapidly aging American population, the need for these generic equivalents has never been greater. To determine the facts, this paper provides a review of the relevant literature concerning the views of the name-brand drug manufacturers as well as the proponents of generic drugs, including the efficacy of the generic drugs compared to their name-brand equivalents, and an analysis of the competitive pricing the results from generic drug equivalents. A summary of the research and important findings are presented in the conclusion.

Table of Contents

Introduction

Review and Discussion

Background and Overview

Efficacy of Name Brand Drugs vs. Generic Drugs

The Drug Price Competition and Patent Term Restoration Act

(Hatch-Waxman Act) of 1984

Conclusion

Generic vs. Name Brand Drugs

Introduction

As the costs of brand-name prescription medicines continue to skyrocket, healthcare consumers and their advocates are calling for increased availability of generic alternatives and expedited approval methods to facilitate their entry into the marketplace. In response, pharmaceutical companies argue that the exorbitant costs of research and development demand that they be allowed to recoup their investments by charging higher prices so that they can earn a reasonable return on their investment and continue their research and development efforts to identify new and better drugs. Notwithstanding these demands from the pharmaceutical companies, this paper will show that generic drugs are as safe and effective as their name-brand alternatives and should be made readily available to the general public in the United States. In support of this position, this paper provides a review of the relevant peer-reviewed, scholarly and popular literature to determine the respective positions of the name-brand drug manufacturers and the advocates of generic drugs, including the respective efficacy of these drugs, and an analysis of the competitive pricing the results from generic drug equivalents, followed by a summary of the research and important findings in the conclusion.

Review and Discussion

Background and Overview

By any measure, medicines are big business today. For example, Jaquette (2007) reports that revenues from the sale of brand-name and generic pharmaceuticals in the United States alone amounted to almost $275 billion in 2006 and continue to escalate. According to Jaquette, "Consumers in this country, including the federal government, are paying tremendous amounts of money for drugs and the cost continues to be a growing concern for all parties involved. Part of this increased cost encountered by consumers can be directly attributed to the ever-increasing costs manufacturers must cope with in the development of new drugs" (2007, p. 97). Indeed, the developmental costs associated with introducing a new drug are staggering and not all investments in research and development are successful. In this regard, Jaquette notes that, "Economists estimate that it takes twelve to fifteen years to develop a single new drug and have it approved by the Food and Drug Administration (FDA). The average cost: $800 million" (p. 98). Moreover, just 0.0005% of all medicines (5 out of every 10,000) that are researched go on to the clinical trial phase, and of these five, just one medicine is finally approved for sale by the FDA (Jaquette, 2007).

Further compounding the problems for drug manufacturers is the fact that even if a drug is ultimately approved after this vetting process, there is no guarantee of financial returns on the significant investments that were involved in its development. According to Jaquette, "Of all the drugs approved by the FDA, only three out of ten generate revenues that meet or exceed average research and development costs. Thus, the pharmaceutical industry and consumers have great incentive to find ways to expedite the development of new drugs while controlling the costs associated with research and development" (p. 98). These are vitally important issues in the United States today, because of the enormous amounts of money that are involved as well as a rapidly aging population that will require more medications in the future. In this regard, Jaquette emphasizes that, "Spending for prescription drugs in the United States is one of the fastest growing components of national health care spending. This cost has increased by double digit rates from 1995 to 2003" (p. 98). As the American population grows older and the Baby Boomers reach retirement age, it is reasonable to project that fewer healthcare consumers will be able to afford all of the medications they need (Jaquette, 2007).

As discussed further below, the debate over name-brand vs. generic drugs was largely irrelevant as recently as the 1960s, when just 15.5% of prescription medications had a generic alternative available for the top 500 prescribed drugs (Harrison, 2004). Two basic trends changed this situation in recent years, though. The first trend was the increase in the rate of patent expirations for name-brand drugs and the second was a delay in the introduction of new name-brand drugs (Harrison, 2004). As a result of these two trends, more than one-half of all prescription drugs have a generic alternative available (Harrison, 2004). In fact, the term "generic drug" is specifically used to refer to "a copy of an original product whose patent has expired" (Lofgren, 2004, p. 39). According to Lofgren, "Generics can be marketed as branded products - that is, with a trade name belonging to the producer - or under the generic name of the active compound" (2004, p. 40). Likewise, Mossialos, Mrazek and Walley (2004) note that, "Once the patent on a pharmaceutical product has expired, generic equivalents may come on the market, so increasing competition" (p. 25). This point is also made by Buehler (2002) who emphasizes, "Once generic drugs are approved, there is greater competition, which keeps the price down. Today, almost half of all prescriptions are filled with generic drugs" (p. 24).

Some of the barriers that remain firmly in place that prevent increased access to generic equivalents include various institutional arrangements, including the prescribing behavior of physicians, long-standing loyalties to certain name-brand drugs, and regulatory and reimbursement systems, including retail pharmacy regulation and practices (Lofgren, 2004). According to Greene (2005), a Congressional Budget Office study found that the average price of a generic drug is about 50% of the average price for a virtually identical brand name drug and that the availability of generic drugs saved healthcare consumers as much as $10 billion. Generic drugs are generally far less expensive than their name-brand alternatives because the generic pharmaceutical companies avoid the high costs of research and development incurred by the pioneer manufacturers (Kesselheim, 2008).

Despite these charges from critics of generic drugs, the fact remains that generic equivalents are only permitted once a patent has expired, and the pioneer manufacturer has enjoyed a long time to recoup their initial investment in research and development. In this regard, Buehler emphasizes that, "Brand-name drugs are generally given patent protection for 20 years from the date of submission of the patent. This provides protection for the innovator who laid out the initial costs (including research, development, and marketing expenses) to develop the new drug" (p. 24). Following the expiration of the original patent held by the pioneer manufacturer for the brand-name drug, and only then, are other pharmaceutical companies permitted to introduce generic equivalents, and these are only allowed on the market after they have been thoroughly tested by manufacturer, subjected to intense scrutiny and ultimately approved by the FDA (Buehler, 2002). The recent increase in the number of different generic equivalents and the percentage of market share they have captured are due in large part to legislation enacted in the 1980s, and these issues are discussed further below.

The Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act) of 1984

The foregoing arguments concerning the efficacy of generic equivalents are due in large part to the Drug Price Competition and Patent Term Restoration Act (Hatch-Waxman Act) of 1984 which facilitated the introduction of generic equivalents into the marketplace (Kesselheim, 2008). Prior to the passage of the Hatch-Waxman Act, there was little direct competition between brand-name drugs and their generic alternatives because of the convoluted approval process required by the Food and Drug Administration (FDA) (Greene, 2005). According to Greene, though, "The Hatch-Waxman Amendments save the generic manufacturers even more time, not to mention money, in the approval process by granting the generic manufacturer an expedited review process" (p. 309).

The abbreviated approval process authorized by Hatch-Waxman lets generic drug manufacturers use the same clinical data that the original manufacturer used to obtain FDA approval, thereby avoiding these expenses. In this regard, Greene emphasizes that, "Whereas the pioneer drug manufacturer must incur great expense and undergo rigorous scrutiny when it files an new drug application (NDA) to secure FDA approval, a generic manufacturer may file an Abbreviated New Drug Application (ANDA) in which it may take advantage of the NDA holder's time and expense" (2005, p. 310).

The impact of the Hatch-Waxman Act on generic drug availability has been enormous. For instance, in 1984, generic drug prescriptions represented less than 20% of all prescription drugs marketed in the United States; however, due in large part to the Hatch-Waxman Act, by 1996, the market share for generic drugs had increased to 43% and by 2006, as many as 63% of all prescriptions in the United States were for generic equivalents (Kesselheim, 2006). Moreover, Abramson, Harrington, Missmar, Li and Mendelson (2004 note that, "Because of price caps from insurers on brand-name products, generic drug sales now constitute a principal source of operating revenue for most retail pharmacies" (p. 26). Given the proliferation of generic equivalents for name-brand drugs, a reasonable concern relates to whether these cheaper alternatives are as effective as their more expensive name-brand counterparts, and these issues are discussed further below.

Efficacy of Name-Brand Drugs vs. Generic Drugs

Critics of generic drugs point out that despite the fact that these medicines generally contain the same active ingredients as their name-brand counterparts, they do not always contain the same inactive ingredients which may produce different results in different healthcare consumers (Greene, 2005). Advocates of generic drugs counter that the studies to date have shown that these alternatives have "nearly always been shown to have identical therapeutic effects" (Kesselheim, 2008, p. 126). Similarly, Mossialos and his associates emphasize that, "A generic equivalent is a perfect substitute to the original brand and competes in price for market share" (p. 25). In order to qualify as a "perfect substitute," generic drugs must satisfy rigorous quality and content standards. In this regard, Dr. Gary Buehler, director of the FDA's Office of Generic Drugs, advises, "A generic drug is a copy that is the same as a brand-name drug in dosage, safety, and strength, how it is taken, quality, performance, and intended use. Generic drugs are safe, effective and FDA-approved" (2002, p. 24). Moreover, Buehler (2002) insists that generic drugs work in the same fashion as their higher-priced name-brand counterparts and require the same amount of time to become effective. Critics, though, maintain that not only are some generic drugs prepared with different inactive ingredients that may affect their efficacy, manufacturers are being unduly enriched by taking advantage of the enormous costs that were incurred in the research and development of these brand-name drugs (Greene, 2005). Furthermore, although there remains a dearth of timely and relevant clinical studies concerning the respective efficacy of generic drugs compared to their name-brand alternatives, the research to date has shown that despite generic drugs being the chemically equivalent compound of a brand-name drug, "A a small number of patients in individual circumstances seem to fare better on a brand-name drug" (Fox, 2003, p. 7). Interestingly, though, the same body of research indicates that some patients appear to respond better to generic drugs compared to their higher-priced name-brand equivalents (Fox, 2003).