When a name-brand drug goes generic, it means other drug companies can start producing it, not just the firm that held the original patent. That can mean the drug will cost less, though that's not always the case.
Andrew Ching, a Canadian market researcher, has conducted a study that shows faster approval times for generic drugs will get them into consumers' hands quicker, but may not make the price any cheaper. Ching contends that speeding up the generic approval process actually keeps the price from being as low as it could be.
As part of his research, Ching created a mathematical model showing that fewer firms enter the marketplace because the chances of getting there first and commanding the best profits are dramatically smaller when drug approval times are shorter.
Ching is an associate professor of marketing at the University of Toronto's Rotman School of Management.
Using the drug clonidine, Ching's model showed the number of firms in the marketplace dropped by 25 percent -- from 12 to nine -- under a shortened approval time scenario.
Faster not necessarily cheaper
"Potentially, for the consumer, the price may not drop as much as you'd hope," said Ching.
It normally takes companies an average of more than 20 months to get U.S. Food and Drug Administration (FDA) approval for generic versions of established drugs. That makes approval times uncertain and companies often must go through several rounds of review.
Companies also pay several million dollars when they apply for FDA approval. Given these as well as other development costs, firms making it to the marketplace last sometimes experience losses.
Wrong approach?
Chaig says his research is relevant because the FDA has actively tried to reduce generic approval times in order to benefit consumers, and has proposed strategies for how to do it -- including spending more money in order to bring on extra staff to do the reviews.
Ching says his results, which were published in International Economic Review, suggest the FDA should think twice before going that route.
"Even if the government spends a large amount of resources to improve the efficiency of the FDA in approving generic drugs, it does not necessarily achieve the goal of enhancing welfare," Ching's said.
