Generic Drug
Definition
A pharmaceutical product that contains the same active ingredient, dosage form, strength, and route of administration as an originator (branded) drug and is demonstrated to be bioequivalent. Generic drugs can be manufactured and marketed after the expiry of the originator's patent protection and regulatory exclusivity periods. They typically enter the market at 70-90% discounts to the branded price, and their introduction materially impacts the valuation of pharmaceutical patent intangible assets in purchase price allocations.
Complementary Terms
Concepts that frequently appear alongside Generic Drug in practice.
A pharmaceutical product that generates annual revenue exceeding $1 billion, representing a transformational commercial success for its manufacturer. Blockbuster drugs — such as statins, biologics for autoimmune diseases, and oncology treatments — drive the majority of pharmaceutical industry profits and are among the most valuable intangible assets in existence.
A regulatory status granted to drugs developed to treat rare diseases affecting small patient populations, providing incentives such as market exclusivity (7 years in the US, 10 years in the EU), tax credits on clinical trial costs, and reduced regulatory fees. Orphan drug designation significantly enhances the economic value of a pharma intangible asset by creating protected market positions.
The regulatory process by which a pharmaceutical product receives authorisation for commercial sale, granted by agencies such as the FDA (US), EMA (EU), and MHRA (UK). Drug approval requires demonstration of safety, efficacy, and manufacturing quality through preclinical studies and clinical trials.
The sharp decline in revenue experienced by a pharmaceutical or technology company when patent protection expires on a key product, exposing it to generic or competitive alternatives. Patent cliffs are a critical consideration in the valuation of patent-dependent businesses, as revenue can decline 70-90% within 12-24 months of patent expiry in the pharmaceutical sector.
The portfolio of drug candidates at various stages of research, development, and regulatory approval within a pharmaceutical or biotechnology company. The pharma pipeline is a critical intangible asset, with each compound's value dependent on its probability of regulatory approval, expected market size, patent protection remaining, and development costs to completion.
The authorisation granted by a government or regulatory body permitting a company to manufacture, market, or sell a product or service in a specific jurisdiction. Regulatory approvals — including drug approvals (FDA, EMA), financial service licences (FCA, MAS), telecommunications licences, and environmental permits — are recognised as contract-based intangible assets in purchase price allocations under IFRS 3 and ASC 805 when they arise from contractual or legal rights.
A reasonableness check performed in purchase price allocations to verify that the weighted average rate of return across all identified assets (tangible, intangible, and goodwill) is consistent with the overall weighted average cost of capital (WACC) used in the transaction. If WARA materially deviates from WACC, it indicates that the individual asset returns or relative values require adjustment.
A biological medicine that is highly similar to an already approved reference biological product, with no clinically meaningful differences in safety, purity, or potency. Unlike generic small-molecule drugs, biosimilars cannot be exact copies due to the complexity of biological manufacturing processes and require their own clinical trials to demonstrate similarity.
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