Drug Patents And Generic Alternatives Generic Drugs Economics Essay

In the healthcare crisis, drug prices are increasing drastically as more innovative drugs are being created. From individuals who are hit hard by this crisis to health care providers, businesses and large pharmaceutical companies, all are affect the generic-brand name controversy. Generic drugs are a new alternative to these drugs without the sky rocketed prices that monopolistic brand named pharmaceutical companies are setting. Consumers are stuck in between the two, having to choose between their health care provider and the pharmaceutical companies. Since generic drugs are more popular among consumers, many have questioned whether or not it is safe because of the low costs. Can there actually be a two way solution-having generic drugs that are both low cost and just as effective as the generic drug? Well, there are two sides of the story and consumers want to know about it. Myths often hide the truth behind the drug companies and the regulation that follows with the continuous production of new drugs.

Generic Drugs: What are generic drugs?

Generic Drugs are copies of brand-name drugs without the high costs. Generic companies are able to take advantage of these innovations and create copies of brand name drugs. They do not need the initial research to create discover the drug; therefore, allowing it to be sold at a much lower cost. Generic drugs are available not only as prescriptions, but over the counter (OTC) as well. This means that anyone can purchase it. These drugs, on the other hand, can only be produced and sold after the original drug is out of patent. Although these are only “copies,” they contain the same active ingredients as any other brand name drug.

One reason why generic drugs are important is that it makes healthcare more affordable, brings consumers significant savings. Nonetheless, the FDA, who regulates these drugs before distribution to the consumers, is making significant changes to allowing people to be able to obtain these drugs. They are speeding up its processes and hiring more experts to test the quality of these drugs. However, with low costs, people are worried about the quality of these drugs (Meadows, pg 2). Regulation of the generic drugs is just as important as brand name drugs. The FDA is serious about putting the word out about generic drugs by promoting awareness of not only of its cheap prices, but of its effectiveness and quality, as well.

While these generic drugs seem to be more beneficial, the brand name drugs should not be pushed aside. Generics are “only possible with the creation of new and innovative drugs.” This process, nevertheless, costs billions of dollars of investments. It is estimated that the development of a new drug averages $897 million (Meadows, pg 1). As the FDA Consumer Magazine writes, “Without fair compensation from meaningful patent production, drug research and development would stop.” This means that even though generics play a key role in making healthcare more affordable, there is no doubt that brand-name drugs are just as essential (Meadows, pg1).

Cost: Choosing cost over quality?

The rise in healthcare costs is mainly due to the sharp increases in prices of prescription drugs that are posed by these large pharmaceutical companies. Paying for drugs is no longer a problem for the poor. It has started to affect even the companies who are paying for healthcare. Businesses are starting to shrink their health care plan for their employees. Of course, the elderly is the most affect. Senior citizens, who used to rely on their health care provider and their supplementary insurance, can no longer do that anymore. The ultimate problem is that health care is shrinking while the prices of prescription drugs continue to increase rapidly. Therefore, generic drugs are a great alternative to encounter these problems. People like senior citizens and those who are poor are more likely to purchase generics rather than brand name drugs during this time of healthcare crisis (Angell, pg 13). For one thing, brand name drugs are increasing in prices and many insurance companies don’t cover it. They will, instead, provide the generic alternative of a drug to a patient if it’s available due to the low costs, unless otherwise specified by the physician.

Prescription drugs require billions in investment in order for it to be made and sent out to the public. What sets generic drugs apart from the brand name drugs is mainly the cost. Generic drugs can be 30 to 70 percent cheaper than its brand name opposite; sometimes even 85% cheaper (FDA, 2010). According to Chart 1, a patient who has stomach ulcers will need to pay about $164.27 for a month supply of the drug called Prevacid, which is the brand named version, while on the other hand, paying $25 for the generic version called ameprozole. (Blue Shield, 2008). Generic drugs have become more popular among American consumers within this past twenty years. In 1984, less than 19% of all drugs were generics. But today, more than 54% of drugs that are prescribed are generics (Public Citizens, 2010).

These cost effective drugs are question because consumers don’t see a reason how a drug can be the same but a lot cheaper as well. According to the FDA, the low costs of these drugs are because of the low investment in research and development. While brand name companies put billions into investment, generic companies really don’t have to invest in this. The high prices are not mainly due to high costs of research but also to marketing. Every day, Americans are faced with billboards and ads about these new innovative drugs and how they are useful and important. Part of what consumers are paying for when they are buying the drug covers these massive advertisements by the pharmaceutical companies.

Regulation: What is the role of the FDA?

The quality of the drugs does not depend solely on the generic or branded manufacturer but also relies on the regulation of the U.S. Food and Drug Administration. While companies care for profit, the FDA is a government organization that has a goal to protect the lives of consumers. Its testing on the safety of new drugs is really important and needs to be done before any danger can be imposed on patients. The FDA, represented by Gottllieb, explains in the speech that no sides are being taken to either stopping pharmaceutical companies or making consumers pay more (Gottlieb, 2010). For each drug, they verify that no side effects or any potential risks to drugs being released to the public. At the end, the FDA strongly encourages the use of generic drugs because they have tested and believe that it will be just as effective while being cost effective. It also encourages brand name companies because continuing of innovation and the access of new drugs by consumers is of much importance.

Regulation of drugs by the FDA is strict. According to the US Food and Drug Administration (FDA), “To gain FDA approval, a generic drug must:

contain the same active ingredients as the innovator drug (inactive ingredients may vary)

be identical in strength, dosage form, and route of administration

have the same use indications

be bioequivalent which means it delivers the same amount of ingredients into the bloodstream

raw material must meet the same requirements for identity, strength, purity, and quality set by the U.S. Pharmacopoeia

be manufactured under the same strict standards of FDA’s good manufacturing practice regulations required for innovator products”

One question about generic drugs is its regulation by the FDA as compared to the brand name drug or the reference drug. Does generic mean lower cost and lower safety? A few cases of reports have been made on generic drugs saying that it has potential risks. In 2008, it was reported that a drug called Digitek, a generic of gidoxin, were being produced oversized tablets. Actavis, the company producing the generic, realized that there were about 20 oversized tablets in a batch of about 5 million (FDA, 2010). This caused a lot of questioning of the regulation by the FDA. Although they reacted aggressively, it is believed that regulation of these generic drugs by the FDA is a lot easier for generic than for brand name drugs. These initial drugs that are first tested are placed under greater restrictions than generic drugs. The brand name drugs have to pass many tests, including clinical studies. It can be safely assumed that brand name drugs are safer even though its costs are higher. According to Meadows, under the Drug Price Competition and Patent Term Restoration Act of 1984, which is also known as the Hatch-Waxman Act, generic companies don’t have to repeat expensive clinical trials on the generic drugs (Meadow, pg 3). There is one flaw and it is that these drugs do not have to pass clinical tests. Therefore it can be safely assumed that “what is chemically equivalent does not mean it is clinically equivalent” (Road Back Foundation, 2010).

Bioequivalence: How does this work?

The issue of bioequivalence is a key aspect of this generic-brand name debate. Generic drugs are cost efficient; however, the effectiveness of these drugs is questioned. According to the FDA, “Generic drugs are required to have the same active ingredient, strength, dosage form, and route of administration as the brand name (or reference) product.  Generic drugs do not need to contain the same inactive ingredients as the brand product. These active ingredients will determine whether the drug is chemically similar to the original patented or brand name drug. However, the quality of these ingredients is also important. Based on what the Road Back Foundation writes, the ingredients used in the drug production are not of good quality. These ingredients that used to be taken from Western Europe are not being taken from China, Japan, South Korean and Eastern Europe (Road Back Foundation). These variations ultimately affect the drugs and the FDA accepts that. This is a big difference in the performance of a drug.

The FDA also states that the generic drug that is modeled after the brand name one must perform “approximately” the same way as the brand name drug. But what does approximately mean? Well, the FDA allows a bioequivalence range of plus or minus 20% of the original drug, meaning that it can have a total of 40% difference. Such big difference can affect how the absorbance of the drug in a person. It can also be not as effective or even harmful in worse cases. However, the FDA only reinsures that the drug is performing the same way as the reference product with the allowance of small variations (FDA). Variations are always possible; they can even occur in mass production of a drug and can be a bit different from package to package.

Monopoly: Does patents give them control?

The FDA regulates drugs and the allowance of a certain drug to be distributed into the market. Drug patents are important to drug companies, allowing patenting the drug itself, the methods of its use, the formulation or the process of making it. Patents can stop any other company from making to selling the drug without the innovator company’s permission. At the same time, the brand name companies will fight to keep this drug to themselves because they do not want generic companies to sell the same drug at a cheaper price. Generic drugs, ultimately, causes drops in sales of the drug by the brand name companies; therefore, kicking them out of the game. As a result of this big industry, brand name companies still want to take control of this by using the law to squeeze their way through. Big drug companies know how to play the game and they will do everything they can to stop generic companies.

Pharmaceutical companies can be compared to monopolies. They can control the prices of the drugs that they develop. These companies spent billions on inventions of new drugs, resulting in them with the allowance of having patents on their drug. Whenever a company makes a new drug, they are allowed to put a patent on them. A patent on a drug usually lasts for 20 years and they are able to make as much money as they want on it since they are able to control the prices. This is how pharmaceutical companies make money on brand name drugs. However, what happens after 20 years? Drugs need to pass many regulations, whether or not they are new drugs or imitations of patented drugs. If generic drugs are being made, there is no doubt that the sales of the brand name drugs will drop while the sales of the generic alternative will increase.

The Pharmaceutical industry is very competitive and companies are willing to do whatever they can to halt or even stop generics from being in the market. In this industry, the only thing that protects the drugs from other competitors is patents (Baker, pg 1). Different industries have different patenting effects. Such drugs require million of investment in the invention of it while costly very little in making imitations by generic companies. Generic companies usually apply for the production of a generic drug at the FDA right when patents are about to expire and this brings great harm to the patent holder. Such companies will often fight to slow down this process by creating loopholes for the generic company. They may sue for infringement of the drug; therefore, delaying the process in which it can be sold. This may delay the access of a generic drug from four month up to forty-four months (Meadows, pg 3).

These innovator companies are also being protected by the NDA. This “back-up” plan helps the company regain losses by using other approved drugs or by partnering with generic companies or having subsidiary companies (Wagh, pg1). On the other hand, many of these pharmaceutical companies who are making the “brand-name” drugs are also the ones who are making the generic drugs. Although from a point, it seems like generic drug companies are taking over the market after the patent expires from the drug, it is not really the case since it can be the same company putting out the generic drug, but just in a lower price. It is similar to Robert A. Hardt’s explanation that the drug manufacturers are not only caring about making profit but they are also caring about the public health. The continuation of research and development is what allows generic to be made (Hardt, pg 57).

It seems that there is a lot of competition between generic and innovator companies. As one company benefits, the other one is at a loss; sales can skyrocket and plunge at the same time. However, there is also competition among generic companies themselves. Generic Drug companies can also get exclusivity for a drug from each other. The exclusivity act will allow any generic drug company a 180-day period to make and sell the drug while competing with other companies. (Wagh, pg 3) Because of this competition, it can also drive prices even lower that it is suppose to be. According to Meadows, the Hatch-Waxman Act is actually increasing competition between generic and brand name companies. This helps keep drug costs down and also causes innovator companies to develop new drugs. It is a two way split that benefits both types of companies as well as consumers who are counting on these newer, more effective and cheaper drugs (Meadows, pg 3).

There are both disadvantages and advantages to the generic-brand name drug controversy. However, the consumers should be informed about it. The FDA continues to regulate these drugs and the drugs should be just as safe and effective as the original-brand named drug. Pharmaceutical companies continue to regulate the high prices of brand name drugs because they have to make profit from it after their investments on research and development as well as the marketing costs of putting the drug out there for consumers to be informed about it. They are creating new drugs that are ultimately helping patients and their illnesses. With these new drugs, the FDA regulates and tests them before it is given to patients. However, new alternatives like generic drugs are being promoted because it can not only help patients but they are also cost-friendly, almost one-third cheaper than the original brand name drug. In the end, these brand name pharmaceutical companies will continue to fight to keep generic companies out of the market since it is affecting the sales of the profit. While this is happening, consumers should be able to get quality drugs along with cost effective benefit. Generic drugs will be just as safe and effective as the brand name drugs.

Chart 1: Comparing costs of generic vs. brand name drugs (Blue Shield, 2010)