The equivalence standard is precise, and the Orange Book is where it is written down. FDA publishes Approved Drug Products With Therapeutic Equivalence Evaluations, universally called the Orange Book, and its preface sets out the test. Products are therapeutic equivalents "if they are pharmaceutical equivalents for which bioequivalence has been demonstrated, and they can be expected to have the same clinical effect and safety profile when administered to patients under the conditions specified in the labeling." FDA lists five criteria: approval as safe and effective; pharmaceutical equivalence, meaning identical amounts of the identical active ingredient in the identical dosage form and route, meeting compendial standards; bioequivalence; adequate labeling; and manufacture in compliance with current good manufacturing practice regulations.
The preface is equally clear about what equivalence does not require. FDA considers products therapeutically equivalent "even though they may differ in certain other characteristics such as shape, scoring configuration, release mechanisms, packaging, excipients (including colors, flavors, preservatives), expiration date/time, certain aspects of labeling ... and storage conditions." A pill that looks different is not evidence of anything. FDA adds that where such differences matter for a particular patient, "it may be appropriate for the prescribing physician to require that a specific product be dispensed as a medical necessity", which is the narrow, legitimate route around substitution.
Why the price falls, in two separate mechanisms. The first is development cost: FDA says generics "tend to cost less than their brand-name counterparts because they do not have to repeat animal and clinical (human) studies that were required of the brand-name medicines to demonstrate safety and effectiveness." The second, and the larger one over time, is competition. FDA states that "a single generic competitor can lead to price reductions of 30%, while five generics competing are associated with prices drops of nearly 85%." That is the practical point for a patient: the first generic to arrive after exclusivity ends is often not much cheaper, and the price a household actually notices usually arrives a year or two later, once several are on the market.
Substitution is state law, and FDA is deliberately not the decision-maker. The Orange Book's therapeutic equivalence evaluations, FDA says, "have been prepared to serve as public information and advice to state health agencies, prescribers, and pharmacists ... Therapeutic equivalence evaluations in this publication are not official FDA actions affecting the legal status of products under the FD&C Act." FDA's own account of the background is that, "to contain drug costs, virtually every state has adopted laws and/or regulations that encourage the substitution of drug products", generally by either permitting substitution only for drugs on a list or permitting it for everything except a listed set. So whether your pharmacist substitutes, whether you can refuse, and what a prescriber has to write to prevent it are questions of the law where you live, not of federal drug law.
Two things that are not generics, and both get confused with them. An authorized generic is defined at 21 U.S.C. 355(t)(3) as a listed drug that "has been approved under subsection (c)" (that is, under the brand's own new drug application) and is marketed "under a different labeling, packaging ... product code, labeler code, trade name, or trade mark than the listed drug." It is the brand drug, made on the brand's application, sold without the brand's name. FDA is required by 355(t)(1) to publish a list of them and to update it quarterly. A biosimilar is something else again: 42 U.S.C. 262(i)(2) defines it as a biological product licensed under 42 U.S.C. 262(k) that is "highly similar to the reference product notwithstanding minor differences in clinically inactive components" with "no clinically meaningful differences" in safety, purity and potency. Highly similar is not the same as the identical active ingredient a generic must have, and substitution turns on a separate finding: 42 U.S.C. 262(i)(3) reserves "interchangeable" for a product meeting the standards at 262(k)(4), which alone "may be substituted for the reference product without the intervention of the health care provider who prescribed the reference product."
Where the money actually shows up for a household. A generic sitting on a plan's lowest formulary tier usually carries the smallest fixed copay the plan offers, which is why the arrival of a generic version of a drug you take is worth checking for by name each year at open enrollment. The other place to look is the cash price: for an inexpensive, widely-supplied generic, the price a pharmacy will accept in a cash transaction is sometimes below the plan's own copay, which is what a prescription discount card is selling.
