Generic Pharmaceuticals Sector, 2007

U.S. Market Overview

A generic drug is, in essence, a chemically identical version of a drug whose patent term and period of data exclusivity has expired. Generic drugs are bioequivalent to their innovative counterpart. This means that the generic drug is identical to the innovative drug in dosage form and strength, administration and intended use, safety and quality, and performance characteristics. Generic drugs are widely used in the U.S. because of the significant savings they offer to consumers. In 2005, generic medicines accounted for 56 percent of prescriptions dispensed, but less than 13 percent of every dollar spent on prescription drugs in the U.S. According to a 1998 study by the Congressional Budget Office, generic drugs save consumers between $8 and $10 billion every year.

Based on prescriptions dispensed annually, four of the top five pharmaceutical companies in the world are generic manufacturers: they are Sandoz, Teva, Mylan and Watson respectively. Of these four companies, two are headquartered in the United States: Mylan and Watson.

The Drug Price Competition and Patent Term Restoration Act (better know as the Hatch-Waxman Act) passed in 1984, is the predominant piece of legislation that increased generic availability in the U.S. The Act allows generic manufacturers to apply for market approval using the testing information of the brand version of the drug; this not only dramatically expedites the approval process, getting the generic to the market faster, it is also a great cost savings for generic manufacturers, allowing them to pass that savings on to the consumer.

Despite the high percentage of annual prescriptions filled with generics in the United States, the industry still works hard to win consumer confidence, as some consumers who are not familiar with generics may question the products’ safety. Over the past few years there has been an enormous effort to educate consumers in the U.S. on the safety and efficiency of generic drugs. The Food and Drug Administration’s Office of Generic Drugs and the Generic Pharmaceutical Association have both taken steps to inform consumers that generics are just as safe as their brand counterparts.