Fresh evidence of the power of generic drugs to reduce US health costs surfaced as part of a new FDA study that documents the sharp declines in prescription drug prices following the onset of generic competition. According to the analysis, much of the downward pressure on Rx price levels occurs after 2 generic versions reach the market.

When a brand name drug faces only one generic competitor, the discount associated with that single generic averages only 6% of the branded drug's price. The FDA, however, found that as additional generics reach the market, prices begin to fall dramatically. When a second generic manufacturer launches its product, the average per-dose price for the generic medication falls to 52% of the brand name version's cost.

Prices continue to decline as more generic competitors enter the market. According to the FDA analysis, when 9 generic versions become available, these products sell for an average of just 20% of the price of the brand name product. The FDA's analysis was based on 1999-2004 retail sales data on single-ingredient drug products collected by IMS Health Inc.