The brand name pharmaceutical was originally identified via research and drug discovery functions and conducted through an extensive approval process and then marketed effectively to teach physicians when and how to use it to the best advantage. To recover these costs new drugs must usually be protected from competitors, usually with patents, and the price charged is often high. (Drugs that cannot be protected in this way are called orphan drugs. An example is lithium carbonate used to treat bi-polar disorder.)
When patents expire, competitors are allowed to make and sell generic equivalents of the brand name drug. The generic is approved by an Abbreviated New Drug Application. Often this results in a major decline in the market and pricing of the corresponding brand name drug. But this competition is justified in that it allows older drugs to be available to the public at lower cost. It also encourages drug companies to continue development of newer and better drugs.
Certain companies specialize in generic drugs. Increasingly they are made by companies in countries like India and imported throughout the globe. This is part of the globalization process going on in the pharmaceutical industry.
Related Fool Articles
Recent Mentions on Fool.com
- Was CVS' Cigarettes Decision the Right One?
- MannKind, Front and Center: The Best Product Doesn?t Always Equal the Best Stock
- Following Hepatitis C, This Could Be the Next Disease Researchers Cure
- Johnson & Johnson Takes On Gilead Sciences in Hep C... Again
- What Is the S&P 500 Index?
- SWOT Analysis of Gilead Sciences Inc. Stock