History of the Generic Industry
The generic
drug industry can trace its founding to the mid-1960s, when
an effort by the government to prove the safety and effectiveness
of pharmaceuticals manufactured prior to 1962 opened the door
for the full-scale development of generic products. In 1962
the National Research Council of the National Academy of Sciences
was instructed to evaluate all drugs that had been approved
for use prior to 1962. The Drug Efficacy Study Implementation
(DESI) program reviewed more than 3,000 products. The resultant
list described which products were effective for all claimed
indications, and which were probably or possibly effective for
claimed indications, and those that were ineffective for claimed
indications.
As a result
of the review of these products, generic manufacturers were
able to file for approval to manufacture products that had been
ruled effective without the need to conduct biostudies. Thus,
a number of "older" medications (pre-1962), if made
to the prescribed chemical formula, were able to enter the market
without additional study. Although the first step in the development
of a fledgling industry, more than a decade passed before additional
legislation created the right environment for the generic pharmaceutical
industry as it is known today.
The
milestone often acknowledged as the start of the modern generic
pharmaceutical industry was the approval of the Drug Price Competition
and Patent Restoration Act in 1984. This law, often called the
Hatch-Waxman Act, permitted manufacturers to file Abbreviated
New Drug Applications (ANDAs) for generic versions of all post-1962
approved pharmaceutical products. To be approved under an ANDA,
the manufacturer had to submit detailed information regarding
bioequivalence, manufacturing processes, etc., to prove that
the generic version was equivalent to the branded version. (This
level of testing was not required for pre-1962 products.)
The Act
opened the floodgates for generic competition for pharmaceutical
products, creating the modern generic pharmaceutical industry.
Since 1984, the generic industry has grown to more than $16
billion in annual sales, representing more than 53% of all prescriptions
filled in 2004.
In 1998,
the Congressional Budget Office (CBO) published an analysis
of the contributions of generic medicines during first 15 years
of the modern generic industry. The CBO study found savings
to consumers to be enormous. "CBO estimates that in 1994,
purchasers saved a total of $8 billion to $10 billion on prescriptions
at retail pharmacies by substituting generic drugs for their
brand-name counterparts."
The study
also found that while good for consumers, generic competition
has also been good for innovation within America’s brand
pharmaceutical industry. "Between 1983 and 1995, investment
in R&D as a percentage of pharmaceutical sales by brand
name drug companies increased 14.7 percent to 19.4 percent.
Over the same period, U.S. pharmaceutical sales by those companies
rose from $17 billion to $57 billion. Overall, then, the changes
that have occurred since 1984 (the Hatch-Waxman Act) appear
to be favoring investment in drug development."
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