When a pharmaceutical company first markets a drug, it is usually under a patent that allows only the pharmaceutical company that developed the drug to sell it. Generic drugs can be legally produced for drugs where: 1) the patent has expired, 2) the generic company certifies the brand company's patents are either invalid, unenforceable or will not be infringed, 3) for drugs which have never held patents, or 4) in countries where a patent(s) is/are not in force. The expiration of a patent removes the monopoly of the patent holder on drug sales licensing. Patent lifetime differs from country to country, and typically there is no way to renew a patent after it expires. A new version of the drug with significant changes to the compound could be patented, but this requires new clinical trials and does not prevent the generic versions of the original drug.
This allows the company to recoup the cost of developing that particular drug. After the patent on a drug expires, any pharmaceutical company can manufacture and sell that drug. Since the drug has already been tested and approved, the cost of simply manufacturing the drug will be a fraction of the original cost of testing and developing that particular drug.
