Sample Paper on Effects of Generic Drugs and Authorized Generics on the Pharmaceutical Markets

Healthcare costs have been rising in the U.S. in recent years, particularly in the context of increasing focus on value-based rather than cost-based care models. The value-based care model emphasizes payment for value added rather than for time spent in healthcare institutions and has proven effective towards enhancing health outcomes. Healthcare practitioners are focusing on providing incremental value, while patients seek to obtain affordable healthcare. The government, through its different healthcare insurance schemes, is also pushing for cheaper, high quality, and safe healthcare practices (Cantor et al., 2011). In this context, generic medications have been identified as a suitable solution for addressing the cost issues in healthcare practice while still delivering value-based care. Generic pharmaceutical products come with significant value, equal that of brand name products.

Through Medicare and Medicaid, the government has made various efforts to promote the use of generic medications in healthcare to reduce the cost of drugs. Policy changes have been made to authorize the distribution of generic drugs and support insurance companies in the incorporation of generic drugs into the healthcare process (Van Arnum, 2018).The incorporation of generic drugs into healthcare has increased in recent years due to the hiking of listed prices of brand-name products. Higher rebates on brand-name products have also been used by the government to ensure that patients have many options of drugs (Cantor et al., 2011). While the rebates are meant to reduce the cost of such medication, they have instead been passed to the consumers, making brand-name medications still unaffordable. The government’s bid to promote the use of generic medications has also inspired other organizations and even third-party financiers of healthcare insurance to encourage the use of generic medications.

There are two categories of generic medications, namely, authorized generics and generic drugs. Each of the categories comes with lower costs compared to brand-name pharmaceutical products. Generic medications are generally not required to undergo clinical trials; hence the production costs are much lower than those of the brand-name products (FDA, 2020). Both categories of generic medications are considered effective and safe due to the stringent processes preceding their approvals for the market. Essentially, the authorized generics are usually the brand-name products that are sold without the inclusion of the approved brand name on the packaging, while the generic products are manufactured with biochemical compositions similar to those of approved brand-name products (FDA, 2020), and are approved based on the clinical trials conducted on the brand-name products. The distinction between the two is important as it can influence the perceptions of users and prescribers about the different categories of generic drugs.

Despite the increasing popularity of generic drugs and authorized generics as alternatives to the brand-name products in ophthalmology practice, recent trends have shown a decline in the availability of certain types of generic and authorized generic products. The shortage of generic drugs has resulted in up to a 7.3% rise in the costs of the available drugs (Cantor et al., 2011). Different drugs also have different levels of perceived and real efficacies, which lead to the preference of certain types of drugs over others. A good example is the dorzolamide hydrochloride ophthalmic solution and dorzolamide hydrochloride-timolol maleate ophthalmic solution, both of which are glaucoma medications and have been listed by the FDA to be in shortage since 2017 due to quality and manufacturing issues (Linnehan, 2019). The shortage of these drugs has led to a general shortage in glaucoma treatment drugs although they are not the best in the market (Linnehan, 2019). This is an indication of the effects of drug shortage once any given drug has been introduced into the market and a confirmation that the FDA needs to be more proactive towards ensuring safety in generic drugs.

The FDA monitors progress in drug utilization and project shortages. In case there is a severe shortage, such as in the case of dorzolamide, immediate action is recommended (FDA, 2020). The rationale behind such immediate action is that such drug shortages, particularly for generic drugs and authorized generic products, is detrimental impacts on the pharmaceutical products’ market as it increases market prices and limits product availability (Wineinger, Zhang, & Topol, 2019). Cantor et al. (2011) suggest that while the FDA does not directly determine the drug prices, it plays an important role in the approval process for drugs, which contributes to their availability in the markets. The decision to approve a drug depends on whether the product has adhered to the full approval requirements.

Various studies have been conducted on generic drug products and their roles in the market. Similarly, there have been studies on the effects of drug shortages in the pharmaceutical markets. However, studies that directly link generic drug products and authorized generic drugs in the field of ophthalmology are still few. In conducting studies on the dynamics of the pharmaceutical industry and drug development, the impacts of generics and authorized generic products in the markets should be a subject of great concern. Price (2019) points out that generic products present both a challenge and an opportunity for the industry, key of which is the challenge of speedy delivery of products to the market. The responses of pharmaceutical companies to the challenges and opportunities for generic and authorized generic products have various impacts on the pharmaceutical market, which are also worth exploring.  This study focuses on some of these relationships by first exploring the differences between generic drugs and authorized generic products; and then exploring the effects of those drugs on the pharmaceutical industry market, particularly on product prices and the welfare of consumers. The study is expected to contribute to the pharmaceutical industry by giving a framework based on which planning and release of generic products into the pharmaceutical market can be accomplished.

Statement of the Problem

The growth in the generics and authorized generic ophthalmic products has not significantly improved drug availability and reduced the cost of medicine. Various concerns are still observable, which increases concern about the effectiveness of generic and authorized generic products and the differences between the two categories. According to Davies (2011), different perspectives on generic drugs have been developed due to the variability in preservatives and inactive ingredients in the two drug categories, which result in significant variations in bioavailability and absorption of those products. Davies also posits that these differences in bioavailability and absorption can result in differential safety and effectiveness of the drugs. Ophthalmologists have to follow up closely on patients to determine whether the generic products are effective towards attaining the intended treatment objectives (Davies, 2011). Sometimes, drugs have to be switched to more effective brand-name products; hence it is suggested to explore the performance of generic drugs and authorized generic drugs within the ocular environment before approval. Such requests indicate fear of inefficiency and inadequacy of testing.

Concerns centered on the possibility of inadequacy and inefficiency of generic and authorized generic drugs imply that there is a need to understand the compositions and characteristics of generics and authorized generics. Understanding the mechanisms of their functioning and a comparison of the cost versus effectiveness profiles of generic products authorized generic products and brand-name products are necessary for such drugs to be considered equally efficient ophthalmic products. The possible outcome of failure to create alignment between ophthalmologists and pharmaceutical companies regarding pharmaceutical products results in outcomes such as those observed in the case of dorzolamide (Linnehan, 2019). These concerns arise because of gaps in the literature concerning the differences between generic ophthalmic products and authorized generic ophthalmic products and their effectiveness. This study aims to fill this gap by exploring various aspects related to generic products and authorized generic products.

Purpose of the Study

The purpose of this study is to explore the differences between authorized generic products and generic drugs. In this context, the definition of the authorized generics adopted is that given by the FDA (2020) and Authorized Generics (2019), which is that they products identical to the brand-name pharmaceutical products and are made in the same facility as the brand-name products but are marketed as generic products under a private label. Edlin (2019) reports that “An authorized generic is exactly the same product as an approved branded drug, but is marketed without the brand name on the label” (par. 2). On the other hand, generic drugs are copies of the brand-name products with the same active agent and different preservatives and inactive agents (FDA, 2020). It further presents the benefits of both categories of drugs in the U.S. market, their consequences on the U.S. pharma market, effects of the authorized generics and generic drugs on pharma competition in the U.S., and the link between these factors and drug pricing.

Theoretical Frameworks

The study is founded on the theory of drug development. The theory, described by Holmgren (2013), presents a quantitative framework that aids in understanding the process of drug development based on the perspectives of drug companies as well as those of drug regulatory agencies, such as the food and drug administration (FDA). Moreover, the concept covers various elements of the drug development process, including the practice of systematically addressing problems in drug development, such as sizing of trials, choice of the rand of p-values that can indicate the need for a follow-up phase three trial in drug development; determination of whether to approve the drug for marketing based on the outcomes of phase 2 and 3 development processes and experiences gained through clinical trials with similar drugs. The theory also addresses issues on determining the adaptive designs related to drug quality to obtain approvals for marketing and on designing studies to enhance data-driven estimations of the treatment effects (Holmgren, 2014). Drug development should also entail the collection of information to establish the effectiveness of drugs and their effects on patient survival times (Holmgren, 2013). Furthermore, a rationale is provided for the quantitation of evidence in the drug development process and the adequacy of evidence collected from clinical trials for reference in the drug approval process.

The theory of drug development asserts that drug development is founded on two truths, namely, that most of the development molecules would fail and that the cost of drug development is significantly high. The objective of any drug development process is, therefore, to develop molecules that do not fail at the least costs possible. According to Gad (2017), these truths can best be understood through the principles behind drug development, which state that the losers should be killed as soon as possible to avoid incurring unnecessary costs in drug development; and that the minimum time should be taken in drug development. The best strategies used towards the accomplishment of the objectives of minimizing costs and reducing the timelines for drug development include doing only what must be done and minimizing the risks of subsequent failure (Gad, 2017). Pharmaceutical companies focus on conducting phase I tests to confirm the therapeutic efficacy of the tested molecules. Drug development is carried out through a series of steps, each of which is considered a decision-making point to eliminate risks of failure in drug development. Technical tasks and studies have to be augmented with other components that can be effective in attaining the goals of the developed drugs.

Generic products and authorized generic products undergo somewhat similar pharmacological development and testing processes and understanding the differences. These disparities exist in the development, testing, and approval processes can help to understand their perceived differences in consumer benefits, their effects on the quality of products in the U.S pharma market and the consequences of their approval on market competition and pricing in the pharmaceutical industry (Linnehan, 2019). The theory of drug development can help in understanding the development and testing differences for the drugs, thus helping to develop a perspective about the different phenomena under exploration.

Generic drugs and authorized generics are also subject to varying market approval processes. These processes are part of the conventional drug development process, which adheres to the theory of drug development. In principle, the same strategies, namely, doing only what must be done and minimizing the risks of subsequent failure, have to be followed to bring them successfully into the market (Gad, 2017). Accordingly, there is a divergence in the paths taken by the different categories of generic products as well as in the associated costs of production (Oraiopoulos & Dunlop, 2017). Such differences inevitably result in variances in the market prices of the said products as well as their effects on the market. Observations, such as that made with dorzolamide, can be attributed to such differences in the drug development process, which results in differences in affordability and effectiveness (Linnehan, 2019). Dunne, Shannon, Dunne, and Cullen (2013) report that generic products can be as much as 20-90% cheaper in comparison to the brand-name counterparts; hence their introduction into the pharmaceutical market inevitably results in changes in product prices. The choice of drugs among consumers is also dependent on the psychological impressions of the drugs on the customers and the available resources. Kiernan (2019) posits that most consumers of pharma products perceive generic drugs to be inferior quality, a concern that Davis (2011) hints at through the assertion that clinical observations of drug effectiveness have to be made. The relevance of the theory of drug development thus extends beyond describing the differences in the production process to explaining some of the effects of the products on the market and on consumers.

Research Questions

Various research questions have been formulated to attain the objectives. The following research questions will be answered.

  1. Is there a significant difference between AG & Generics in the quality of products in the U.S. pharma industry?
  2. a) Which has the most benefits to the consumers between authorized and generic drugs in the U.S. pharmaceutical market?
  3. How do authorized and generic drugs affect the quality of products in the U.S. Pharma market?
  4. What are the consequences of authorized and generic drugs on consumer welfare in the U.S. Pharma market? {Hypothesis question}

4.What are the effects of authorized and generic drugs in the market competition in the U.S. Pharma market?

a)How does this question then tie in with drug pricing?

Research Hypotheses

The thesis aims to test the main hypothesis, which is:

H0: Generic drugs and authorized generics have both positive and negative consequences on consumer welfare in the U.S. pharma market.

Scope of the study

The scope of the study is relatively wide. It provides a background on the shortages of ophthalmic drugs and the effects of that shortage on the pharmaceutical industry. Additional context covers the distinction between generic drugs and authorized generics. From those distinctions, the effects of generic drugs and authorized generics on the pharmaceutical markets (such as on drug prices) and on consumer welfare will be presented.

Significance of the Study

The study is aimed at determining the differences between authorized generics and generic drugs in the pharmaceutical industry and exploring their effects on the consumers and the industry, particularly on competition and drug pricing. The study will contribute to both academia and pharmaceutical practice significantly.

Definition of Terms

Generic drug – Dunne et al. (2013) describe generic drugs as a drug developed as a copy of a brand-name drug by another company besides that which produces the brand-name product. The generic drug essentially contains the same ingredients as is contained in the brand-name product except for the preservative and inactive ingredients. It, therefore, functions in the same way as the brand-name product.

Authorized generic drugs– FDA (2020) describes authorized generic drugs as drugs identical to the brand-name and manufactured under the same facility in which the brand-name products but marketed without the brand names on the product labels. They may even be marketed as generics at a lower price.

Brand-name products– Brand-name products are described as the approved drug for the treatment of a specific condition, whose formulation is adopted for the development of generic products. Brand-name drugs have to be listed by the FDA for release into the pharmaceutical market.

Drug development – Drug development involves the entire process from the initial conceptualization of the drug, through all the three phases of its testing and clinical trials through to the approval stage prior to marketing. The process involves several stakeholders, ranging from the approval body, the manufacturer, and the users.

Drug listing – the inclusion of a generic drug or a brand-name drug in the FDA list of drugs approved for market distribution. Drugs that are not listed by the FDA cannot be marketed.


This first chapter provides an overview of the research project. The chapter begins with an explanation of the background for the study. The context of the research is within a background of increasing healthcare costs in the U.S., which have resulted in the government promoting the use of generic drugs. Third-party payers are also opting for generic drugs. The generic drugs are available in the forms of generic drug and authorized generic products, and the availability of the two types of generic drugs in the market has various effects both on the pharmaceutical products market and the consumers. Understanding these effects forms the underlying objective of this study.

The chapter also describes the research problem and places it within a relevant context. Next, the purpose of the study is presented, followed by the theoretical framework for the study. The study is based on the theory of drug development, and the third sub-section of this chapter describes the theory and its relevance to the study objective. The research questions and hypotheses are then provided and are expected to be the points of focus of the study. The scope of the study, significance and the definition of terms is presented.

The paper is divided into five chapters. The second chapter presents the literature review, chapter three gives a description of the research methodology; chapter four presents the findings and the discussion, while chapter five gives the conclusion and recommendations.





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