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 15% to 20% of the original price. That’s a big drop. But here’s what most people don’t realize: the real savings don’t come from the first generic. They come from the second and third ones.

Why the second generic changes everything

The moment a second company starts selling the same drug as the first generic, prices don’t just dip-they plunge. According to the FDA’s 2022 analysis of drugs approved between 2018 and 2020, the first generic typically cuts the brand price to about 87% of what it used to be. That sounds like progress, but it’s not enough. When the second generic enters, that number drops to 58%. That’s more than half the original cost, all because another manufacturer decided to make the same pill.

This isn’t magic. It’s basic economics. When there’s only one seller, they have little reason to lower prices further. But add a second seller, and suddenly they’re in a race. Who can make it cheaper? Who can deliver faster? Who can offer better terms to pharmacies and insurers? The pressure is real. And it shows up in your co-pay.

The third generic hits the sweet spot

Now add a third generic manufacturer. Prices drop again-to 42% of the original brand price. That’s more than half the cost of the first generic. In some cases, drugs that once cost $100 a month drop to under $40. For patients on long-term meds-like blood pressure pills, statins, or diabetes drugs-that’s life-changing.

The Assistant Secretary for Planning and Evaluation at HHS found that markets with three or more generic makers see price reductions of about 20% within three years, and those with 10 or more manufacturers see drops of 70% to 80%. The biggest savings don’t come from having five or ten options. They come from having three.

Think of it like this: one generic is a discount. Three generics are a sale. And if you’re paying out of pocket, that difference can mean choosing between refilling your prescription or skipping it.

What happens when competition stalls

Here’s the scary part: nearly half of all generic drug markets in the U.S. are stuck with just two manufacturers. That’s called a duopoly. And in those markets, prices don’t keep falling. They sometimes go up.

A 2017 study from the University of Florida found that when a third generic fails to enter the market-because of manufacturing delays, regulatory hurdles, or even corporate consolidation-prices can jump by 100% to 300%. One drug, a common antibiotic, went from $12 for a 30-day supply to $45 in just two years after the third manufacturer exited. Why? Because the two remaining companies stopped competing. They started pricing like a cartel.

This isn’t theoretical. It’s happening right now. When companies like Teva and Viatris buy up smaller generic makers, they reduce the number of independent players. Fewer players mean less pressure to lower prices. And that’s exactly what happened after the Mylan-Upjohn merger in 2020. The number of independent generic manufacturers shrank. So did the price drops.

Who’s blocking the third generic?

You’d think more companies would rush in to make cheap, profitable generic drugs. But they don’t always. Why?

One reason is pay-for-delay deals. That’s when the original brand company pays a generic maker to wait before launching their version. These deals are legal loopholes that keep prices high. The Blue Cross Blue Shield Association estimates these agreements cost patients $3 billion a year in higher out-of-pocket costs.

Another is patent thickets. Brand companies file dozens of overlapping patents-sometimes 50, 70, even 75-to stretch their monopoly beyond the original 20-year term. One blockbuster drug held off generics for nearly two decades longer than it should have. That’s not innovation. That’s legal obstruction.

And then there’s the supply chain. Three big wholesalers-McKesson, AmerisourceBergen, and Cardinal Health-control 85% of the market. Three pharmacy benefit managers (PBMs)-Express Scripts, CVS Health, and UnitedHealth’s Optum-handle 80% of prescriptions. These middlemen have so much power, they can pressure generic makers to cut prices so low that they can’t stay in business. The result? Fewer companies dare to enter the market. And the ones that do get squeezed out.

Why this matters for everyday patients

Let’s say you take a generic statin. The brand cost $200 a month. The first generic dropped it to $175. The second brought it to $115. The third brought it to $85. Now imagine the third never came. You’re stuck paying $115. That’s $360 more a year. Over five years? $1,800. That’s a month’s rent. A car payment. A vacation.

The FDA says the 2,400 new generic drugs approved between 2018 and 2020 saved Americans $265 billion. That’s not a number. That’s millions of people who could afford their meds because the third generic showed up.

It’s not just about money. It’s about access. When drugs are cheaper, people refill more. Hospitalizations drop. Chronic conditions improve. The health system saves more than it spends.

What’s being done-and what’s not

There are efforts to fix this. The CREATES Act, passed in 2022, stops brand companies from blocking generic makers from getting samples needed to prove their drug works. The Preserve Access to Affordable Generics Act targets pay-for-delay deals. The FDA’s GDUFA III program, running through 2027, is speeding up approvals for complex generics.

But progress is slow. The Congressional Budget Office warns that without stronger action, Medicare will spend $25 billion more a year by 2030 because generic competition isn’t happening fast enough.

Meanwhile, the market keeps shifting. The biggest generic makers are getting bigger. Smaller ones are getting bought out. And the third generic? It’s becoming rarer.

What you can do

You can’t control who makes your drug. But you can control what you ask for.

Ask your pharmacist: “Is there another generic version available?” If they say no, ask why. If the answer is “only two companies make it,” that’s a red flag. Ask your doctor to prescribe the brand-name drug if it’s cheaper than the current generic. That sounds backwards, but sometimes it’s true.

Use price-comparison tools. GoodRx, SingleCare, and even your insurer’s app can show you which pharmacy has the lowest price for which generic. Don’t assume the first generic is the cheapest.

Speak up. If your drug price jumps unexpectedly, contact your state’s attorney general. File a complaint with the FDA’s MedWatch program. Demand transparency.

The system isn’t broken. It’s being manipulated. And the only thing that’s kept prices low so far is the simple, stubborn fact that when a third company enters the room, the price drops.

What happens when no third generic enters

The data is clear: markets with only two generic manufacturers don’t just miss out on savings-they become unstable. Prices rise. Supply chains crack. Shortages happen.

Take the case of injectable epinephrine. When only two companies made the generic version, prices doubled. Then one company stopped making it. The other raised prices again. Patients couldn’t get it. Schools, airlines, and emergency rooms scrambled.

That’s what happens when competition dies.

The entry of the second and third generic isn’t just good economics. It’s public health.