A generic drug is a lower-cost copy of a brand-name chemical drug. Marketing of the generic drug becomes possible only when the brand-nameâalso called innovatorâdrug is no longer protected from market competition by patent and other protections, called regulatory exclusivity. Food and Drug Administration (FDA) approved generic drugs "have the same high quality, strength, purity and stability as brand-name drugs," and have met the same FDA standards regarding manufacturing, packaging, and testing as brand-name drugs. Generic drugs are required to have the same active pharmaceutical ingredient (API) as the brand-name product, but need not have the same inactive ingredients. Prior to marketing, the sponsor of a brand-name drug must submit to FDA clinical data in a new drug application (NDA) to support the claim that the drug is safe and effective for its intended use. The FDA uses the information in the NDA as a basis for approving or denying the sponsor's application. The Drug Price Competition and Patent Term Restoration Act of 1984 ( P.L. 98-417 )âalso called the Hatch-Waxman Actâamended the Federal Food, Drug, and Cosmetic Act (FFDCA) allowing a generic drug manufacturer to submit an abbreviated NDA (ANDA) to the FDA for premarket review. In the ANDA, the generic company establishes that its drug product is chemically the same as the already approved drug and thereby relies on the FDA's previous finding of safety and effectiveness for the approved drug. The generic drug must also be bioequivalent to the brand-name drug, meaning it delivers "the same amount of active ingredients in the same amount of time as the brand-name drug." Because the generic sponsor does not perform costly animal and clinical research âand usually does not pay for expensive advertising, marketing, and promotionâthe generic drug company is able to sell its generic drug product at a lower price compared with the brand drug product. FDA states that on average, "the cost of a generic drug is 80 to 85 percent lower than the brand name product." According to a 2016 report sponsored by the Generic Pharmaceutical Association (GPhA, now called the Association for Accessible Medicines), "generics are 89% of prescriptions dispensed but only 27% of total drug costs. Put another way, brand drugs are only 11% of prescriptions but are responsible for 73% of drug spending." The 2016 GPhA report estimates the 10-year (2006-2015) savings from the use of generic drugs at $1.46 trillion. Once a drug is approved, the brand-name manufacturer sets the drug price based on a number of factors. Patent and regulatory exclusivity allow the company to recoup its research and development expenses, allow further R&D investment, and provide a profit to stockholders. The branded drug is protected from market competition by (1) patents issued by the U.S. Patent Office and (2) regulatory exclusivity granted by the FDA following enactment of the Hatch-Waxman Act. These incentives allow the brand-name company to charge a much higher price for the drug product than the cost of manufacture. For example, the cancer drug Gleevec (imatinib) "can be sustainably and profitably produced at a price between $128 and $216 per person-year, which are far lower than the current prices of around $30,000 in EU and $107,799 per person-year in the USA." The price of a drug is strongly correlated with the number of different manufacturers marketing the drug. According to an FDA analysis, "the first generic competitor prices its product only slightly lower than the brand-name manufacturer. However, the appearance of a second generic manufacturer reduces the average generic price to nearly half the brand-name price. As additional generic manufacturers market the product, the prices continue to fall, but more slowly. For products that attract a large number of generic manufacturers, the average generic price falls to 20% of the branded price and lower." The 2016 GPhA report provides the following two illustrative examples: Zocor (simvastatin) treats high cholesterol and reduces risk of heart attacks and related health problems. The brand price pre-patent expiry for this medicine was $2.62 per pill. The generic version currently sells for three cents per pillâa 99% savings. In 2015, more than 65 million prescriptions for this medicine were dispensed. Depression affects 19 million Americans across age, race, and gender. Generic versions of the popular brand-name drug Zoloft became available in 2006. Last year [2015] there were 45 million prescriptions dispensed for generic versions of Zoloft (sertraline) at a price of six cents per pill. This is a 97% price reduction from the brand pre-expiry price of $2.18 per pill. Recently media attention has focused on price increases for certain generic drugs. For example, between July 1, 2013, and June 30, 2014, the cost of the antibiotic tetracycline increased 17,714% and the heart drug digoxin increased 828%. However, a review of the generic drug market by the Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation (ASPE), found that "about two-thirds of generic products appear to have experienced price declines in 2014." For the segments of the generic drug market that have experienced large price increases, ASPE provides the following explanations: "small markets with limited entry; the impact of mergers, acquisitions, and market exits; the ability to obtain new market exclusivities; and distribution activities." ASPE states that "these problems apply to relatively small segments of the market and, while they lead to increased costs in certain therapeutic areas, they have little influence on overall spending increases." Funding for the premarket review of ANDAs submitted to FDA by generic drug sponsors is provided by direct appropriations from Congress and user fees paid by the generic drug industry. The following section of this report discusses the anticipated reauthorization by Congress of the Generic Drug User Fee Amendments of 2012 (GDUFA). FDA first gained the authority to collect user fees from the manufacturers of brand-name prescription drugs and biological products in 1992, when Congress passed the Prescription Drug User Fee Act (PDUFA). With PDUFA, FDA, industry, and Congress reached an agreement on two concepts: 1. performance goalsâFDA would negotiate with industry on target completion times for various review processes; and 2. use of feesâthe revenue from prescription drug user fees would be used for activities to support the review of new product applications and would supplementârather than supplantâcongressional appropriations to FDA. The added resources from user fees allowed FDA to increase staff available to review applications and to reduce the median review time for standard applications. Over the years, Congress has added similar user fee authority regarding medical devices, animal drugs, and biosimilars. User fees constitute 41% of the FY2017 FDA budget. According to FDA, the Hatch-Waxman Act led to "a significant regulatory challenge" for the agency. That is because FDA's resources did not keep pace with the increasing number of ANDAs and other submissions related to generic drugs. This resulted in delayed approvals of generic drugs, "a major concern for the generics industry, FDA, consumers, and payers alike." In March 2012, median review time for generic drug applications was approximately 31 months and FDA had a backlog of over 2,500 ANDAs. At that time, FDA was receiving about 100 NDAs and 800-900 ANDAs each year. In addition, FDA had to conduct more inspections as the number of manufacturing facilities grew, "with the greatest increase coming from foreign facilities." In March 2012, the number of foreign Finished Dosage Form (FDF) manufacturers exceeded the number found in the United States. Moreover, the generic industry was experiencing "significant growth in India and China," a trend that was expected to continue. According to FDA, foreign inspections "represent a significant challenge and require significant resources." The agency's website states: Prior to GDUFA, FDA was required to inspect domestic human generic drug manufacturers every 2 years, but no such requirement existed for foreign manufacturers. This disparity between domestic and foreign manufacturing facilities, combined with insufficient resources, created significant vulnerabilities in the global prescription drug supply chain. Approximately 80% of active ingredients used in human generic medicines and marketed in the United States are manufactured in foreign countries, and more than half of finished products are manufactured overseas. In order to expedite ANDA reviews and bring parity to domestic and foreign inspection schedules, FDA had proposed generic drug user fees in each annual budget request to Congress beginning with the FY2008 request. Such fees became possible when the Food and Drug Administration Safety and Innovation Act (FDASIA, P.L. 112-144 ) became law in July 2012. Title III of FDASIA, the Generic Drug User Fee Amendments (GDUFA), authorized FDA to collect fees from industry for agency activities associated with generic drugs. Under what is now called GDUFA I, such fees are allowed to be collected from October 2012 through September 2017. GDUFA I set the total amount of generic drug fees collected for FY2013 at $299 million. It established the types of fees to be paid by the manufacturer. The first two fees listed below are paid at the time of filing or application submission; the facility fees are annual fees for each establishment: application fee for an ANDA, application fee for a prior approval supplement (PAS) to an ANDA, Drug Master File fee, facility fee for the facility making the API, and facility fee for the facility producing the FDF.