Question

In: Economics

The most profitable prescription drugs are those which are still on patent so that the producer...

The most profitable prescription drugs are those which are still on patent so that the producer essentially has a monopoly on the drug while the patent lasts. There are many drugs for which the patent has expired and therefore there are generic drugs available (Advil and generic ibuprofen, Tylenol and generic acetaminophen, etc.). What can you say about the price of these generic drugs and the cost of producing these generic drugs? Please give an explanation.

Solutions

Expert Solution

A generic drug is a drug which is produced and distributed without patent protection. The generic drug may still have a patent on the formulation but not on the active ingredient. A generic must contain the same active ingredients as the original formulation. According to the US Food and Drug Administration (FDA), generic drugs are identical or within an acceptable bioequivalent range to the brand name counterpart with respect to pharmacokinetic and pharmacodynamic properties.Therefore, generics are considered (by FDA) identical in dose, strength, route of administration, safety, efficacy and intended use.

Generic drugs are introduced because generic manufacturers do not incur the cost of drug discovery and instead are able to reverse engineer known drug compounds to allow them to manufacture bioequivalent versions.They also do not bear the burden of proving the safety and efficacy of the drugs through clinical trials, since these trials have already been conducted by the brand name company.

Generic drugs are less expensive because generic manufacturers don't have the investment costs of the developer of a new drug. New drugs are developed under patent protection. The patent protects the investment--including research, development, marketing, and promotion--by giving the company the sole right to sell the drug while it is in effect. As patents near expiration, other manufacturers can apply to the FDA to sell generic versions. Because those manufacturers don't have the same development costs, they can sell their product at substantial discounts. Also, 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.


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