Some Observations Related to the Generic Drug Market

The incentive for a manufacturer of a brand-name prescription drug to undertake measures that attempt to prolong the period of marketing exclusivity for a brand-name drug is very strong. For most prescription drug products, incremental production costs are quite low—literally pennies a pill—while successful new drugs can command high prices. The period of a drug’s market exclusivity is therefore a highly-profitable one, particularly in cases where the drug confers substantial clinical benefits and where patients and providers have few therapeutic alternatives. Over 30 years of experience have shown that when a generic competitor enters the market, the brand-name manufacturer typically faces a rapid and steep loss of market share and profits as patients and providers shift toward a much less expensive generic product that offers the same clinical benefits. Once several generic manufacturers enter the market, competition generally drives prices down “close to marginal cost.”1 It is not unusual for successful new drugs to have annual sales of a billion dollars or more during the exclusive sales period, so delaying the availability of an inexpensive generic alternative even for a short time can preserve enormous profits for the original manufacturer

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