Final answer:
Firms are free to legally produce chemically identical drugs called generic drugs, which are less expensive alternatives to brand-name medications. The lower cost of generics is due to the absence of initial research and development expenses, as these drugs are produced once the original patent for the brand-name drug has expired. The FDA regulates the market to ensure generics are therapeutically equivalent to brand-name drugs.
Step-by-step explanation:
Firms are free to legally produce chemically identical drugs called generic drugs. Generic drugs are equivalents of brand-name drugs whose patents have expired, allowing other companies to manufacture and market them. Unlike name-brand drugs that require significant investment in research and development (R&D) and marketing, generic drug manufacturers do not bear these costs. Hence, generic pharmaceuticals are significantly cheaper because the competing firms can produce the product more cheaply once the patent expires, avoiding the initial R&D costs.
The U.S. Food and Drug Administration (FDA) plays a crucial role in regulating these medicines through processes like the ANDA to ensure that generics are therapeutically equivalent to their brand-name counterparts. The cost savings from generic drugs are vital, as they represented about a third of all prescriptions in the United States during the 1990s and reached 80% of all FDA-approved drugs being available in generic form as of 2012. This practice supports market competition and consumer access to essential medications at lower prices.