When a brand-name drug loses its patent, the first generic version usually hits the market at about 15% to 20% of the original price. That’s a big drop. But here’s what most people don’t realize: the real savings come after that first generic. When a second company starts making the same drug, prices plunge again. By the time a third maker joins, the price often drops to less than half of what the brand charged - sometimes even lower.
Why the second generic changes everything
The first generic drug maker doesn’t have much pressure to cut prices. They’re the only game in town. So they charge what they can get away with - usually around 87% of the brand’s price. But once a second company enters, everything shifts. Suddenly, there are two suppliers fighting for the same customers. Pharmacies, insurers, and hospitals start playing them off each other. The second company needs to undercut the first to win business. That forces the first company to lower its price too. The result? Prices drop to about 58% of the brand’s original cost. That’s a 31% drop from the first generic’s price - just from adding one more competitor.The third generic hits the sweet spot
Add a third manufacturer, and the price doesn’t just dip - it crashes. On average, the third generic brings the price down to just 42% of the brand’s original price. That means patients and insurers are paying less than half of what they paid when the drug was still under patent. In some cases, especially for high-volume drugs like statins or blood pressure pills, prices drop even further - to 30% or less. The FDA found that when three or more companies make the same generic drug, prices fall by 27% more than they did between the brand and the first generic. That’s not a small bump. That’s life-changing savings for people on fixed incomes or taking multiple medications.More competitors = bigger savings
It doesn’t stop at three. When five or more companies make the same generic drug, prices can fall to just 10-20% of the brand’s original price. Markets with 10 or more generic manufacturers often see price reductions of 70-80% compared to the brand. These aren’t theoretical numbers. In 2022, the FDA reported that the 2,400 new generic drugs approved between 2018 and 2020 saved U.S. consumers $265 billion. Almost all of that came from the ripple effect of multiple competitors entering the market. The more companies making the drug, the harder they have to fight to keep their share - and that fight is what keeps prices low.
What happens when competition fades
But here’s the dark side: if one of those manufacturers leaves the market, prices can spike. A University of Florida study found that when a market drops from three generic makers to just two, prices often jump by 100% to 300%. That’s not a mistake. It’s a business strategy. With fewer players, the remaining companies can quietly coordinate pricing - no need to undercut each other anymore. This is why duopolies (two makers) are dangerous. Nearly half of all generic drug markets in the U.S. are stuck in this state, missing out on the deep discounts that come with real competition. The same study showed that when a third maker finally enters a duopoly, prices drop an average of 36% in just a few months.Why aren’t there more generic makers?
You’d think more companies would jump in when prices are high. But it’s not that simple. Making a generic drug sounds easy - it’s the same chemical as the brand. But getting FDA approval takes years and millions of dollars. For complex drugs - like inhalers, injectables, or topical creams - the cost can be over $10 million. Smaller companies can’t afford that risk. And even if they do get approved, they face a stacked system. Three big wholesalers - McKesson, AmerisourceBergen, and Cardinal Health - control 85% of the drug distribution network. Three major pharmacy benefit managers (PBMs) - Express Scripts, CVS Health, and UnitedHealth’s Optum - decide which generics get covered and at what price. These middlemen have enormous power. They can favor the cheapest bid, but they can also punish manufacturers who don’t pay them kickbacks or refuse to give deep discounts. That makes it harder for new entrants to get shelf space.How anti-competitive tactics block savings
Sometimes, the brand-name company doesn’t wait for generics to enter. They pay them not to. These are called “pay-for-delay” deals. The brand pays a generic company millions to delay launching their version - sometimes for years. The Blue Cross Blue Shield Association estimates these deals cost patients $3 billion a year in higher out-of-pocket costs. In one case, a popular antibiotic had a generic version ready in 2014, but the brand paid the maker to wait until 2019. That’s five years of inflated prices. Congress has tried to ban these deals with bills like the Preserve Access to Affordable Generics Act, but they’re still happening. Another tactic is “patent thicketing” - where the brand files dozens of minor patents on packaging, dosing, or delivery methods to block generics. One drug had 75 patents, stretching its monopoly from 2016 all the way to 2034. That’s not innovation. That’s legal obstruction.