Competition between brand name and generic drugs

Abstract

Introduction Government patent law grants to innovators, such as pharmaceutical companies, patents for their discoveries. In turn, the patents allow drug companies to obtain monopoly profits and charge monopoly prices for a period of time. Because bringing a new drug to market has been estimated to cost, on average, over $(USD)800 million,1 drug companies would not undertake the risks associated with developing new drugs without the opportunity to be rewarded for their efforts. When the innovator company’s patent expires, generic companies begin to enter the market, and eventually the market may start to resemble a competitive market. The speed at which the transformation occurs depends on how quickly generic (multiple source) drugs are substituted for branded (single source) medications, and public policy can influence this speed.