Generic vs. Name Brand Drugs: Safety, Efficacy, and Cost

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 and continue identifying new and better drugs.

Notwithstanding these demands from the pharmaceutical companies, this paper argues 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 reviews the relevant peer-reviewed, scholarly, and popular literature to determine the respective positions of name-brand drug manufacturers and advocates of generic drugs, including the efficacy of these drugs and an analysis of the competitive pricing that results from generic drug equivalents.

Background and Overview

By any measure, medicines are big business today. 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. 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 researched — five out of every 10,000 — go on to the clinical trial phase, and of those five, only one medicine is ultimately 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 sums of money involved and a rapidly aging population that will require more medications in the future. 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 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 among the top 500 prescribed drugs (Harrison, 2004). Two basic trends changed this situation in subsequent decades. The first was an 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 half of all prescription drugs now have a generic alternative available (Harrison, 2004).

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 reinforced by Buehler (2002), who emphasizes that "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 preventing increased access to generic equivalents include various institutional arrangements, such as 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). 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 (Greene, 2005). Generic drugs are generally far less expensive than their name-brand alternatives because generic pharmaceutical companies avoid the high costs of research and development incurred by 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 had ample time to recoup the initial investment in research and development. 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, and only then, are other pharmaceutical companies permitted to introduce generic equivalents. These are only allowed on the market after thorough testing by the manufacturer, intense regulatory scrutiny, and ultimate approval by the FDA (Buehler, 2002). The recent increase in the number of generic equivalents and their market share are due in large part to legislation enacted in the 1980s, discussed below.

The Hatch-Waxman Act of 1984

The arguments concerning the availability of generic equivalents are due in large part to the Drug Price Competition and Patent Term Restoration Act — commonly known as the Hatch-Waxman Act of 1984 — which facilitated the introduction of generic equivalents into the marketplace (Kesselheim, 2008). Prior to its passage, there was little direct competition between brand-name drugs and their generic alternatives because of the convoluted approval process required by the FDA (Greene, 2005). According to Greene, "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 allows generic drug manufacturers to use the same clinical data that the original manufacturer used to obtain FDA approval, thereby avoiding these expenses. As Greene explains, "Whereas the pioneer drug manufacturer must incur great expense and undergo rigorous scrutiny when it files a 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. In 1984, generic drug prescriptions represented less than 20% of all prescription drugs marketed in the United States. 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 counterparts — issues addressed below.

Conclusion

The research showed that generic drugs are becoming increasingly available as alternatives to their higher-priced name-brand equivalents, due in large part to the passage of the Drug Price Competition and Patent Term Restoration Act of 1984, which paved the way for generic drug manufacturers to bring their versions of name-brand drugs to market more quickly. The research also showed that as much as half of the drugs being sold in the United States today are generic equivalents.

Despite these trends, the research also showed that there are some barriers to the availability of generic drug equivalents that prevent healthcare consumers from receiving them in certain cases, and there are lingering concerns about the efficacy of generic drugs compared to their name-brand equivalents — despite being chemically identical except for different inactive ingredients in some cases. There have also been reports concerning the safety of these generic equivalents that have some healthcare consumers worried that lower-priced medicines may not be as safe as their higher-priced alternatives.

Despite these concerns, the FDA has been adamant in its assurances that the generic drugs marketed in the United States are as safe and effective as name-brand drugs. In the final analysis, the increasing need for medicines in the future will require more generic alternatives to help satisfy the demand of a rapidly aging population. No American should have to make the difficult choice between spending money on basic necessities such as utilities, food, and rent or the medicines needed to stay alive.

References

Abramson, R. G., Harrington, C. A., Missmar, R., Li, S. P., & Mendelson, D. N. (2004). Generic drug cost containment in Medicaid: Lessons from five state MAC programs. Health Care Financing Review, 25(3), 25–26.

Buehler, G. (2002, September–October). Generic drugs: What you need to know. FDA Consumer, 36(5), 24.

Fox, P. D. (2003). Prescription drug benefits: Cost management issues for Medicare. Health Care Financing Review, 25(2), 7–8.

Greene, S. (2005). A prescription for change: How the Medicare Act revises Hatch-Waxman to speed market entry of generic drugs. Journal of Corporation Law, 30(2), 309–310.

Harrison, C. S. (2004). The politics of the international pricing of prescription drugs. Praeger.

Jaquette, I. (2007). Merck KGaA v. Integra Lifesciences I, Ltd.: Implications of the Supreme Court's decision for the people who matter most… the consumer. American Journal of Law and Medicine, 33(1), 97–98.

Kesselheim, A. S. (2008). Think globally, prescribe locally: How rational pharmaceutical policy in the U.S. can improve global access to essential medicines. American Journal of Law and Medicine, 34(2/3), 125–126.

Lofgren, H. (2004). Generic drugs: International trends and policy developments in Australia. Australian Health Review, 27(1), 39–40.

Mossialos, E., Mrazek, M., & Walley, T. (2004). Regulating pharmaceuticals in Europe: Striving for efficiency, equity, and quality. Open University Press.

Tobin, L. (2009, July 3). Generic drugs industry is damaged by quality fears. The Evening Standard, 47.