Driving innovation through competition.

About Generics

The Science of Generic Medicines

Affordability & Sustainable Health

Intellectual Property

Further Resources

Economic Benefits

The Economic Benefits of Generic Medicines

Increasing patient access to generic medicines generates four principle public health benefits ...

1. Reduces Prices

The savings generated through lower prices make it economically feasible for healthcare systems to make all medicines more available to patients as required with lower co-payments. Reduced prices are achieved in two ways:

• Generic medicines are themselves more economically priced than originator products selling at 20-90% less than original prices;
• Competition from these generic rivals forces originators to reduce their own prices after—or even before—patent expiry, as in the case of ranitidine or fluoxitin (see graph below).

Generics promote competition and bring down prices.
Ranitidine - a popular medicine for ulcer treatments

2. Stimulates Competition

A permanent monopoly on pharmaceutical products would provide little incentive to originator companies to discover new medicines. As in all sectors, competition is a major stimulation to innovation.

It is important to note that the USA is the country with the highest rate of global pharmaceutical innovation. It is also the country which enjoys one of the world’s highest rates of generic penetration (over 60% in volume terms) and boasts a history of governmental encouragement of competition from generic medicines.

Increased competition in the American off-patent sector, created through a combination of substitution laws, fast track approvals for generic medicines and allowing pre-patent development work on generic medicines encouraged American pharmaceutical firms to increase rates of innovation and invest heavily in R&D consequently improving their competitive position as global pharmaceutical innovators. Since the implementation of these provisions in the mid 1980s the US expenditure on R&D increased significantly as a percentage of production. (1)

Reaction of Originator Companies After Introduction
of Hatch-Waxman Act & Competetion from Generic Medicines.
U.S. R&D Expenditures Financed by Firms: 1970-2000

Source: Compiled by PRIME Institute, U of Minnesota, based on data in PhRMA Annual Survey 1998.

3. Creates Budget Headroom for Innovation

Simply put, the estimated €18 billion saved annually in Europe by buying equivalent generic medicines allows healthcare budgets and personal budgets the capacity to buy the newer, more expensive treatments when required.

How patients benefit from generic medicines
Generics supply 50% of products at 20% of Total Cost

Note: UK example.

4. Encourages new pharmaceutical companies

This competition ensures less dependency on large multinational firms for the provision of medicines in Europe and worldwide.

Moreover, several generic medicines companies not only develop important generic equivalents of well-known patent expired products, but also develop new formulations and dosage regimes, methods of delivery, and are involved in other aspects of product development. Indeed a small number of generic companies have gone on to develop their own new chemical entities (NCE).

(1) See: Congressional Budget Office Report: “How increased competition from generic drugs has affected prices and returns in the pharmaceutical industry”
July 1998. Available on-line.