It’s time to revisit generics. As discussed in Chapter 1, a drug is said to have “gone generic” once its patents expire and competition is allowed to enter the market, lowering the price through competition with identical versions of the drug. This typically happens about 14 years after the drug has been approved by the FDA, but there are a number of intentional exceptions as well as exploitable loopholes, which we’ll discuss a bit later.
(Of course plenty of drugs face competition before they go generic, from similar drugs that are in the same “class.” These are often referred to as “me-too” drugs and competition between these similar brands also tends to drive down prices, though not as much as when a drug “goes generic.”)
Please read this Wall Street Journal op-ed Let’s Throw a Patent-Burning Party, where RA Capital’s Peter Kolchinsky argues that the period prior to a drug going generic is the period when the drug is paying back the investors who funded it. Once the investors have been rewarded— and therefore incentivized to continue investing in drug innovation— through the company being able to charge a market-based price for a patent-defined period of time, and made available to patients via insurance (ideally with low or no out-of-pocket costs)— the drug can (and should!) be sold very cheaply forever after. Once a drug’s patent expires, generics companies are typically able to copy the drug and sell their own version. Robust generic competition often means a drug’s price will often drop by over 95% within the first year of patent expiration (though there are exceptions that we’ll cover later). This system is a win-win for everyone!