Objectives The aim of this paper is to consider the extent to which generics can be regarded as substitutes for their branded equivalents and whether financial gains achievable are exaggerated given the potential efficiency losses resulting from their adoption when therapeutic equivalence is compromised.

Methods The paper considers the literature to assess the extent to which generics can be regarded as therapeutically equivalent and cost saving.

Results The evidence that bioequivalence equates to therapeutic equivalence remains inconclusive. The approval processes for generics are less intensive than branded therapies and the extent of their clinical equivalence is not fully assessed, while drugs with a narrow therapeutic index require careful monitoring to ensure that patient benefit is not compromised. In terms of cost savings the perspective employed for such an analysis is crucial. At the individual patient level, differences in acquisition cost might be more than offset by additional costs resulting from further consultations, adverse events or compromises to treatment adherence. For individual conditions, the extent of cost difference is dependent on therapeutic equivalence being as exact as possible.

Conclusion Generic substitution is an effective policy in terms of overall cost savings to healthcare budgets. However, it is essential that therapeutic equivalence is not compromised as there are major efficiency losses associated with deficits in treatment efficacy, existence of more adverse effects, increases in patient monitoring and compromised patient adherence to prescribed medication. Further, high quality studies are needed to assess the therapeutic equivalence of branded and generic drugs – and their relative resource utilisation – especially in areas where the evidence is generally weak.