It is always pleasing to find a government agency with a specialized website. In this case, the FDA maintains a site devoted to generic drugs at http://www.fda.gov/cder/ogd/. There are over two-hundred-thirty staff whose task it is to ensure that the generic drugs approved are safe for consumers to use. Just to give you an idea of the scale of the operation, in 2004, there were 563 applications made to license the production of a generic drug.

There were 880 applications made in 2007. In other words, a vast number of generic drugs come on to the market every year. They are in every way as safe and effective as the original branded version they now compete with. So generic viagra is identical to branded viagra except that it is cheaper. As a part of its function, the Office of Generic Drugs in the FDA monitors and researches the way in which the market works when generics enter.

The supposed advantage is that any competition from a generic manufacturer will force the holder of the patent to drop its price. The consumer therefore benefits immediately. But its research shows that one generic manufacturer has very little effect on prices within the market. The FDA has a detailed analysis of the market from 1999 to 2004 and price is not significantly affected until a second generic manufacturer starts to sell into the market.

The reason is simple. When the first generic competitor enters, even a small price reduction gives it a market edge. But when a second company appears, the two generic manufacturers compete with each other to set the price for a generic version of the original drug. The average result is half the original branded price. In fact, if you now look at the prices for generic viagra you will find it is often less than half the price of the branded version. The greater the quantity you buy, the better the price per tablet (plus the possibility of bonus tablets from some of the online pharmacies).

This is a perfect working example of the research in action. It is also a perfect explanation for Big Pharma’s dislike of generic manufacturers. Once two generic manufacturers start competing with each other, the original manufacturer’s profit margin drops like a stone. It’s great for the consumer. Bad news for the stockholders.

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