generic drug generic drug a generic drug is a pharmaceutical drug that contains the same chemical substance as a drug that was originally protected by chemical patents. generic drugs are allowed for sale after the patents on the original drugs expire. because the active chemical substance is the same, the medical profile of generics is equivalent in performance. a generic drug has the same active pharmaceutical ingredient (api) as the original, but it may differ in some characteristics such as the manufacturing process, formulation, excipients, color, taste, and packaging. in some countries, such as brazil (photo) and france, more than 20% of all drug sales in units are generic. although they may not be associated with a particular company, generic drugs are usually subject to government regulations in the countries in which they are dispensed. they are labeled with the name of the manufacturer and a generic non-proprietary name such as the united states adopted name (usan) or international nonproprietary name (inn) of the drug. a generic drug must contain the same active ingredients as the original brand-name formulation. the u.s. food and drug administration (fda) requires generics to be identical to or within an acceptable bioequivalent range of their brand-name counterparts, with respect to pharmacokinetic and pharmacodynamic properties. (the fda's use of the word "identical" is a legal interpretation, not literal.) biopharmaceuticals, such as monoclonal antibodies, differ biologically from small-molecule drugs. biosimilars have active pharmaceutical ingredients that are almost identical to the original product and are typically regulated under an extended set of rules, but they are not the same as generic drugs as the active ingredients are not the same as those of their reference products. in most cases, generic products become available after the patent protections afforded to the drug's original developer expire. once generic drugs enter the market, competition often leads to substantially lower prices for both the original brand-name product and its generic equivalents. in most countries, patents give 20 years of protection. however, many countries and regions, such as the european union and the united states, may grant up to five years of additional protection ("patent term restoration") if manufacturers meet specific goals, such as conducting clinical trials for pediatric patients. manufacturers, wholesalers, insurers, and drugstores can all increase prices at various stages of production and distribution. in 2014, according to an analysis by the generic pharmaceutical association, generic drugs accounted for 88 percent of the 4.3 billion prescriptions filled in the united states.: 2 "branded generics" on the other hand are defined by the fda and national health service as "products that are (a) either novel dosage forms of off-patent products produced by a manufacturer that is not the originator of the molecule, or (b) a molecule copy of an off-patent product with a trade name." since the company making branded generics can spend little on research and development, it is able to spend on marketing alone, thus earning higher profits and driving costs down. for example, the largest revenues of ranbaxy, now owned by sun pharma, came from branded generics. nomenclature generic drug names are constructed using standardized affixes that distinguish drugs between and within classes and suggest their action. economics when a pharmaceutical company first markets a drug, it is usually under a patent that, until it expires, the company can use to exclude competitors by suing them for patent infringement. pharmaceutical companies that develop new drugs generally only invest in drug candidates with strong patent protection as a strategy to recoup their costs of drug development (including the costs of the drug candidates that fail) and to make a profit. the average cost to a brand-name company of discovering, testing, and obtaining regulatory approval for a new drug, with a new chemical entity, was estimated to be as much as us$800 million in 2003 and us$2.6 billion in 2014. drug companies that bring new products have several product line extension strategies they use to extend their exclusivity, some of which are seen as gaming the system and labeled "evergreening" by critics, but at some point there is no patent protection available. for as long as a drug patent lasts, a brand-name company enjoys a period of market exclusivity, or monopoly, in which the company is able to set the price of the drug at a level that maximizes profit. this profit often greatly exceeds the development and production costs of the drug, allowing the company to offset the cost of research and development of other drugs that are not profitable or do not pass clinical trials. the impact of loss of patent exclusivity on pharmaceutical products varies significantly across different product classes (e.g., biologics vs. small molecules), largely due to regulatory, legal and manufacturing hurdles associated with such products. indeed, the greater degree of 'brand-brand' competitive dynamics seen in the biologics and complex generics space allows manufacturers of originators to better protect market share following loss of patent exclusivity. large pharmaceutical companies often spend millions protecting their patents from generic competition. apart from litigation, they may reformulate a drug or license a subsidiary (or another company) to sell generics under the original patent. generics sold under license from the patent holder are known as authorized generics. generic drugs are usually sold for significantly lower prices than their branded equivalents and at lower profit margins. one reason for this is that competition increases among producers when a drug is no longer protected by patents. generic companies incur fewer costs in creating generic drugs—only the cost of manufacturing, without the costs of drug discovery and drug development—and are therefore able to maintain profitability at a lower price. the prices are often low enough for users in less-prosperous countries to afford them. for example, thailand has imported millions of doses of a generic version of the blood-thinning drug plavix (used to help prevent heart attacks) from india, the leading manufacturer of generic drugs, at a cost of us$0.03 per dose. generic drug companies may also receive the benefit of the previous marketing efforts of the brand-name company, including advertising, presentations by drug representatives, and distribution of free samples. many drugs introduced by generic manufacturers have already been on the market for a decade or more and may already be well known to patients and providers, although often under their branded name. india is a leading country in the world's generic drugs market, exporting us$20.0 billion worth of drugs in the 2019–20 (april–march) year. india exports generic drugs to the united states and the european union. also the according to market research community the global generic drugs market was evaluated us$465.96 million in 2021 and is expected to rise with a cagr of 5.5% from 2022- 2028 during the forecast period. in the united kingdom, generic drug pricing is controlled by the government's reimbursement rate. the price paid by pharmacists and doctors is determined mainly by the number of license holders, the sales value of the original brand, and the ease of manufacture. a typical price decay graph will show a "scalloped" curve, which usually starts at the brand-name price on the day of generic launch and then falls as competition intensifies. after some years, the graph typically flattens out at approximately 20% of the original brand price. in about 20% of cases, the price "bounces": some license holders withdraw from the market when the selling price dips below their cost of goods, and the price then rises for a while until the license holders re-enter the market with new stock. the nhs spent about £4.3 billion on generic medicines in 2016–17. in 2012, 84 percent of prescriptions in the us were filled with generic drugs, and in 2014, the use of generic drugs in the united states led to us$254 billion in health care savings.: 2 in the mid-2010s the generics industry began transitioning to the end of an era of giant patent cliffs in the pharmaceutical industry; patented drugs with sales of around us$28 billion were set to come off patent in 2018, but in 2019 only about us$10 billion in revenue was set to open for competition, and less the next year. companies in the industry have responded with consolidation or turning to try to generate new drugs. regulation most developed nations require generic drug manufacturers to prove that their formulations are bioequivalent to their brand-name counterparts. bioequivalence does not mean generic drugs must be exactly the same as the brand-name product ("pharmaceutical equivalent"). chemical differences may exist; a different salt or ester may be used, for instance. different inactive ingredients means that the generic may look different from the originator brand. however, the therapeutic effect of the drug must be the same ("pharmaceutical alternative"). most small molecule drugs are accepted as bioequivalent if their pharmacokinetic parameters of area under the curve (auc) and maximum concentration (cmax) are within a 90% confidence interval of 80–125%; most approved generics in the us are well within this limit. for more complex products—such as inhalers, patch delivery systems, liposomal preparations, or biosimilar drugs—demonstrating pharmacodynamic or clinical equivalence is more challenging. united states enacted in 1984, the drug price competition and patent term restoration act, informally known as the hatch–waxman act, standardized procedures for recognition of generic drugs. in 2007, the fda launched the generic initiative for value and efficiency (give): an effort to modernize and streamline the generic drug approval process, and to increase the number and variety of generic products available. before a company can market a generic drug, it needs to file an abbreviated new drug application (anda) with the food and drug administration, seeking to demonstrate therapeutic equivalence to a previously approved "reference-listed drug" and proving that it can manufacture the drug safely and consistently. for an anda to be approved, the fda requires that the 90% confidence interval of the geometric mean test/reference ratios for the total drug exposure (represented by the area under the curve or auc) and the maximum plasma concentration (cmax) should fall within limits of 80–125%. (this range is part of a statistical calculation, and does not mean that generic drugs are allowed to differ from their brand-name counterparts by up to 25 percent.) the fda evaluated 2,070 studies conducted between 1996 and 2007 that compared the absorption of brand-name and generic drugs into a person's body. the average difference in absorption between the generic and the brand-name drug was 3.5 percent, comparable to the difference between two batches of a brand-name drug. non-innovator versions of biologic drugs, or biosimilars, require clinical trials for immunogenicity in addition to tests establishing bioequivalency. these products cannot be entirely identical because of batch-to-batch variability and their biological nature, and they are subject to extra rules. generic drugs research when an application is approved, the fda adds the generic drug to its approved drug products with therapeutic equivalence evaluations list and annotates the list to show the equivalence between the reference-listed drug and the generic. the fda also recognizes drugs that use the same ingredients with different bioavailability and divides them into therapeutic equivalence groups. for example, as of 2006, diltiazem hydrochloride had four equivalence groups, all using the same active ingredient, but considered equivalent only within each group. in order to start selling a drug promptly after the patent on innovator drug expires, a generic company has to file its anda well before the patent expires. this puts the generic company at risk of being sued for patent infringement, since the act of filing the anda is considered "constructive infringement" of the patent. in order to incentivize generic companies to take that risk the hatch-waxman act granted a 180-day administrative exclusivity period to generic drug manufacturers who are the first to file an anda. when faced with patent litigation from the drug innovator or patent holder, generic companies will often counter-sue, challenging the validity of the patent. like any litigation between private parties, the innovator and generic companies may choose to settle the litigation. some of these settlement agreements have been struck down by courts when they took the form of reverse payment patent settlement agreements, in which the generic company basically accepts a payment to drop the litigation, delaying the introduction of the generic product and frustrating the purpose of the hatch–waxman act. innovator companies sometimes try to maintain some of the revenue from their drug