A brand-name drug product is originally discovered and developed by a pharmaceutical company. In order for the company to market and sell their product they must first gain approval from the Food and Drug Administration (FDA) by submitting a New Drug Application. In this documentation the company submits data to establish a drug's clinical safety and efficacy. Other studies determine the characteristics of the drug dosage form, including the manufacturing process, drug stability, purity, strength, and how it dissolves. Once the drug receives FDA approval, the innovator company can then exclusively market and sell this 'brand-name' product for as long as the company has patent protection. A 2000 study published in the Journal of Health Economics estimated that bringing a new drug to market costs the innovator on average $802 million over a period of 10 to 15 years. A patent allows the innovator to sell its product exclusively in order to recoup money spent during development and to generate a profit.
The difference between a brand-name product and a generic one is designed to be transparent. Once the patent life expires on a brand-name drug product, it is eligible to be made into a "generic drug." To do this, the generic drug manufacturer must ensure that the drug they are producing contains the same active ingredient(s) as the brand-name product, in the same dosage form, at the same dose or concentration, and for the same route of administration (for example, amoxicillin 500 milligram (oral) capsule). The drug may differ in color, shape, taste, inactive ingredients, preservatives and packaging, however. Because of these differences, the generic drug manufacturers are required to submit additional paperwork to the FDA to prove that their product is manufactured in accordance with good manufacturing practices (GMPs), and is as pure and stable as the brand-name product. Additionally, the generic needs to meet pharmacokinetic parameters in the body, which means it must dissolve (in a beaker) at the same rate and to the same extent as the original. This process ensures that the two products are bioequivalent because if product A and product B dissolve in a virtually identical manner, then they should behave the same in the body.
Thus, a drug that contains the same active ingredient, in the same amount, in the same form, dissolving at the same rate in equal amounts may be granted acceptance for substitution for a brand-name product. If it is accepted, the drug can be prescribed no differently than the brand-name product. Once all the equivalency tests have been conducted, the generic drug is considered a therapeutic equivalent. This means that the drug will do the same thing via the same mechanism, and will also follow the same distribution, metabolism and elimination pathways in the body. One publication that lists this sort of information is called the Orange Book. This publication rates generic drugs in accordance with their respective brand-name products and gives the FDA substitution recommendations. The FDA website (www.fda.gov) is also a very good source.
The major difference between a brand-name pharmaceutical and its generic counterpart is neither chemistry nor quality, but whether the drug is still under patent protection by the company that initially developed it. When a company develops a new drug, it typically receives a patent that lasts 20 years. This means that other pharmaceutical companies may not sell this substance without permission from the developing company during that time. Once the patent expires, however, other companies may begin to sell the compound. Because companies wishing to sell the generic drug have much lower development costs, they can produce it at a lower unit cost, sell it for less and still make a profit on the sale. The FDA regulates manufacture of both brand-name and generic drugs and the overall quality should be comparable. (This is an area of some contention between companies, but to a first approximation the statement is valid.)
The development of any new pharmaceutical is a complex and expensive project. In many instances, the research divisions within pharmaceutical companies spend years studying aspects of the biology and biochemistry of the disease in question (malaria, cancer or bacterial infections, for example) in an effort to develop an approach to attack the disease. Once the biology of the disease is understood and an assay or animal model is in place, medicinal chemists begin to prepare potential chemical inhibitors. From initial results in the biological system, the chemists then prepare new, and hopefully improved, lead compounds. This sort of teamwork between the chemists and biologists often takes years before a final group of lead compounds is ready for more significant evaluation. At this point, a candidate drug is evaluated for toxicity, efficacy and other properties in an animal model (rats or dogs, for instance). This evaluation process may last years. Assuming that the drug candidate is successful in these tests, it then enters into Phase 1, Phase 2 and, finally, Phase 3 clinical trials in humans. The FDA establishes the number of patients required for each phase of the clinical trials according to guidelines based on the disease being treated. For example, a drug candidate for a disease that afflicts only 10,000 people would have a smaller number of patients in its trials than would a potential drug to fight a disease that afflicts millions such as high blood pressure. At the end of the clinical trials the company presents its data to the FDA, which then decides whether or not to approve the drug for sale to the public.
On average, the cost of developing a new drug is now well in excess of $1 billion and takes more than 10 years. (Again there is a wide discrepancy between estimates of the actual cost and time required, but I have attempted to provide an unbiased estimate using a variety of sources.) Because patents are typically granted during the initial research phase of investigation, a company developing a new drug usually has 10 years of patent protection (at the maximum except in rare cases of "orphan diseases") during which the drug is on the market. Thus, the higher prices of brand-name prescription drugs arise because companies have to recoup their investment during the lifetime of the patent, typically seven to 10 years, as well as make a profit on the sale.
This response represents a simplified case study and there are many examples of drug development that do not fit this profile precisely. For some brand-name drugs the developmental time frame is shortened somewhat, but there are many others in which it can last much longer.