How Second and Third Generic Drugs Drive Down Prescription Prices

When a brand-name drug loses its patent, the first generic version usually hits the market at about 87% of the original price. That sounds like a big discount - until you see what happens when a second or third company starts making the same drug. Then prices don’t just drop. They plummet.

Why the second generic changes everything

The first generic drug maker doesn’t have much pressure to lower prices. They’re the only game in town, so they can charge close to what the brand did. But as soon as a second company gets FDA approval and starts selling the same pill, everything shifts. Suddenly, there are two suppliers. Two companies fighting for the same pharmacy, the same insurer, the same patient. That’s when prices start falling fast.

According to FDA data from 2022, the second generic typically brings the price down to just 58% of the original brand price. That’s a 31% drop from the first generic’s price - all because one more company entered the market. It’s not magic. It’s basic economics: more sellers = lower prices. And this isn’t theoretical. It’s happening right now with common drugs like metformin, lisinopril, and atorvastatin.

The third generic is where the real savings kick in

The third generic isn’t just another player - it’s the tipping point. Once three or more companies are making the same drug, prices don’t just dip. They crash. The FDA found that the third generic reduces the price to only 42% of the original brand price. That’s more than half off from the first generic’s price and nearly 60% off the brand’s original cost.

This isn’t a one-time event. It’s a pattern. Markets with three or more generic manufacturers consistently see prices fall by 20% or more within three years. In larger markets - like those with over 15,000 monthly users - you often see eight, nine, or even ten different makers. In those cases, prices can drop 70-80% below the brand’s original price. For a drug that used to cost $100 a month, that means patients pay $20-$30 instead.

What happens when competition disappears

The flip side of this story is just as important. When competition drops - when one company leaves the market or gets bought out - prices don’t stay low. They spike.

A 2017 study from the University of Florida found that nearly half of all generic drug markets in the U.S. were stuck in duopolies - just two makers. In those cases, prices didn’t fall as much. And when one of those two companies pulled out or raised prices, the remaining one followed suit. Some drugs saw price jumps of 100% to 300% after competition shrank from three to two. That’s not a glitch. It’s how the system works when there’s not enough competition to keep prices in check.

This is why the entry of the second and third generics matters so much. They’re not just options - they’re safeguards. They prevent any single company from holding the market hostage.

Why big wholesalers and PBMs make it harder

You might think more generics means lower prices for patients. And usually, it does. But there’s a catch: the middlemen.

Three big wholesalers - McKesson, AmerisourceBergen, and Cardinal Health - control 85% of the generic drug supply chain. Three pharmacy benefit managers (PBMs) - Express Scripts, CVS Health, and Optum - handle 80% of prescription claims. These companies don’t always pass along the savings from generic competition to patients. Sometimes they keep the discount for themselves or use it to negotiate better deals with brand-name drug makers.

That’s why you might see a big price drop on the manufacturer’s invoice, but your copay doesn’t change much. The gap between what the maker charges and what you pay at the pharmacy is often filled by markups from wholesalers and PBMs. The FDA found that when you look at manufacturer prices (what companies charge each other), the drop from multiple generics is steeper than what pharmacies actually pay. That’s because the middle layer is taking a bigger slice.

How anti-competitive tactics block savings

Not all drug makers play fair. Some brand-name companies pay generic manufacturers to delay their entry. These are called “pay-for-delay” deals. The brand pays the generic company millions to sit on the sidelines instead of launching a cheaper version. The Blue Cross Blue Shield Association estimates this practice costs patients $3 billion a year in higher out-of-pocket costs.

Others use “patent thicketing” - filing dozens of overlapping patents on minor changes to the drug, like a new coating or pill shape, just to delay generics. One drug had 75 patents filed to stretch its monopoly from 2016 to 2034. That’s not innovation. That’s legal obstruction.

These tactics don’t just hurt patients. They hurt the entire system. The Actuarial Research Corporation estimates that removing these barriers could save the U.S. $1 trillion in drug spending over the next decade - mostly from faster entry of second and third generics.

What’s being done to fix it

There are signs of progress. The CREATES Act, passed in 2022, makes it harder for brand companies to block generic makers from getting the samples they need to test their drugs. The Preserve Access to Affordable Generics and Biosimilars Act targets pay-for-delay deals. And the FDA’s GDUFA III program, running from 2023 to 2027, is speeding up approvals for complex generics - the kind that usually take longer to enter the market.

But the real leverage still comes from competition. Every new generic manufacturer that enters the market is a force multiplier. The FDA estimates that between 2018 and 2020, 2,400 new generic drugs saved patients $265 billion. That’s not because of regulation. It’s because more companies started making the same pills.

What patients can do

You don’t need to wait for Congress or the FDA to act. If you’re on a generic drug, ask your pharmacist: “How many companies make this?” If there’s only one, ask if another version is available. Ask your doctor to write “dispense as written” on the prescription - that stops pharmacists from switching to the most expensive version just because it’s the default.

Also, check your pharmacy’s price list. Some chains publish their cash prices for generics. You might find that the same drug costs $5 at one store and $40 at another. That’s not a mistake. It’s because one store is using a cheaper generic supplier.

The bottom line? More competitors = lower prices. And the second and third generics are the most powerful tools we have to make drugs affordable. When they enter the market, they don’t just lower the price. They reset the entire system.