How Second and Third Generic Drugs Drive Down Prescription Prices

When a brand-name drug’s patent expires, the first generic version usually hits the market at about 15% of the original price. That’s a big drop-but it’s only the beginning. The real savings come when a second and then a third generic manufacturer enters the race. These later entrants don’t just add choice-they trigger a chain reaction that slashes prices even further, often cutting costs in half again within months.

Why the second generic changes everything

The first generic drug maker doesn’t have much pressure to lower prices. They’re the only option besides the brand, and many pharmacies still pay close to the old brand price because there’s no real competition. But as soon as a second company gets FDA approval and starts selling the same drug, everything shifts. Suddenly, pharmacies and wholesalers have leverage. They can play one supplier off the other. The first generic maker, who thought they had a monopoly, now has to compete-or lose business.

Data from the FDA shows that when a second generic enters the market, prices drop to about 58% of the original brand price. That’s not a small adjustment-it’s a 30% plunge from the first generic’s price alone. In real terms, if a brand drug cost $100 per month, the first generic might drop it to $13. The second generic pushes it down to $5.80. For patients paying out of pocket, that’s the difference between affording a medication and skipping doses.

The third generic hits the sweet spot

Add a third manufacturer, and prices don’t just keep falling-they collapse. The FDA found that with three generic makers, prices fall to just 42% of the brand’s original cost. That’s a 27% drop from the second entrant. In some cases, the price drops even lower-down to 30 cents per pill for common drugs like metformin or lisinopril. This isn’t theoretical. It’s happening right now in markets where multiple companies are approved to make the same drug.

Why does this happen? Because each new entrant doesn’t just add supply-they create a bidding war. Generic manufacturers operate on razor-thin margins. They don’t make money by charging more; they make it by selling volume. So when a third company shows up, they’ll undercut the others just to get shelf space. The second company responds. The first scrambles. And patients win.

What happens when competition stalls

But not all generic markets work this way. Nearly half of all generic drugs in the U.S. are sold by only two manufacturers. That’s called a duopoly. And in those markets, prices don’t fall-they stabilize, or worse, rise.

A 2017 study from the University of Florida found that when competition drops from three makers to two, prices can jump 100% to 300%. Why? Because with only two players, they can quietly coordinate pricing without getting caught. No one’s left to challenge the price. No one’s forced to undercut. The market becomes a game of chicken-and patients pay the price.

This isn’t random. It’s structural. When a market has only two manufacturers, they’re not competing-they’re coexisting. And that’s exactly what brand-name drug companies want. Some even pay generic makers to delay entering the market. These "pay-for-delay" deals cost patients $3 billion a year in higher out-of-pocket costs, according to the Blue Cross Blue Shield Association.

Who’s really controlling the price?

You might think more generic makers means lower prices for everyone. But the story gets messy when you look at who’s buying. Most prescriptions are handled by pharmacy benefit managers (PBMs) like Express Scripts and CVS Health, and three giant wholesalers-McKesson, AmerisourceBergen, and Cardinal Health-control 85% of the market. These middlemen negotiate bulk deals with manufacturers, and they often don’t pass savings on to patients.

Here’s the catch: the FDA found that while manufacturer prices (what companies charge wholesalers) drop by 60-70% with multiple generics, what pharmacies actually pay-after wholesalers add their markup-is only down 40-50%. That gap? It’s not the manufacturers’ fault. It’s the supply chain. PBMs and wholesalers keep a big slice of the savings, even when generics compete fiercely.

That’s why a $5.80 pill might still cost you $20 at the pharmacy counter. Insurance doesn’t always cover the full discount. Cash-paying patients get hit hardest. The real savings go to insurers and big pharmacy chains-not always to the person holding the prescription.

Why more generics aren’t always coming

You’d think with so much money to be saved, more companies would rush in. But barriers are growing. Making a generic drug isn’t cheap. For complex pills-like extended-release versions or injectables-the cost to develop and get FDA approval can hit $2 million. Small companies can’t afford that. So the market is shrinking.

Big players like Teva and Viatris now dominate. They bought up smaller generic makers. That reduces the number of independent competitors. Fewer players means less pressure to cut prices. And when a company controls 20 different generic drugs, they can afford to hold prices steady on some to make up for losses on others.

The FDA has tried to fix this. Their GDUFA III program, running from 2023 to 2027, is speeding up approvals for complex generics. The CREATES Act, passed in 2022, tries to stop brand companies from blocking generic makers from getting samples they need to test their products. And lawmakers are pushing bills to ban "pay-for-delay" deals.

But progress is slow. In 2022, the FDA approved over 1,000 generic drugs. But only a fraction of those were for drugs where competition was already weak. The real wins-adding a third or fourth maker to a stagnant market-are still rare.

The real impact: 5 billion saved

Between 2018 and 2020, the FDA approved 2,400 new generic drugs. The result? $265 billion in savings for American patients and insurers. That’s not a guess. It’s an official estimate. And the biggest chunk of those savings came from markets where two or three generics competed.

The Assistant Secretary for Planning and Evaluation at HHS confirmed that markets with three or more generic manufacturers saw price drops of 70% or more after three years. That’s the sweet spot. One generic? Minor savings. Two? Good savings. Three or more? Game-changing savings.

Compare that to brand-name drugs, where a single company controls pricing for years. A cancer drug might cost $10,000 a month. After generics enter, it can drop to $300. That’s not just affordable-it’s life-changing.

What patients can do

You can’t control how many generic makers enter the market. But you can use the competition to your advantage.

• Ask your pharmacist: "Are there multiple generic versions of this drug?" If yes, ask which one is cheapest.
• Use price comparison tools like GoodRx or Blink Health. They show real-time prices from different suppliers.
• If your prescription is expensive, ask your doctor if a generic alternative exists-even if you’ve been on the brand for years.
• Call your insurance company. Sometimes, switching to a different generic version lowers your copay.

Don’t assume all generics are the same. They’re chemically identical, but the price isn’t. The difference between a $2 and a $20 pill might just be which company made it-and how many others are competing to sell it.

The bottom line

The second and third generic drug makers aren’t just competitors-they’re the most powerful tool we have to make medicine affordable. Their entry doesn’t just lower prices. It breaks monopolies, forces transparency, and gives patients real power. But that power only works if enough companies are allowed to enter the market.

Right now, too many markets are stuck with just two players. Too many deals are being made behind closed doors. Too many patients are paying more than they should. The system works-when it’s allowed to work. And the data is clear: more competition means lower prices. Always.