Therapeutic Equivalence Codes (TE Codes) Explained: How Generic Drugs Are Approved and Substituted

When you pick up a prescription for a generic drug, you might not think twice about whether it works the same as the brand-name version. But behind that simple swap is a detailed, science-backed system called Therapeutic Equivalence Codes-or TE Codes. These codes tell pharmacists exactly which generic drugs can be safely substituted for brand-name medicines without changing how well they work. It’s not just a label. It’s a legal and clinical standard that saves billions every year and keeps millions of patients on their medications without breaking the bank.

What Are TE Codes and Why Do They Matter?

Therapeutic Equivalence Codes are assigned by the U.S. Food and Drug Administration (FDA) and published in the Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. First created in 1984 after the Hatch-Waxman Act, TE Codes were designed to bring clarity to generic drug substitution. Before this system, pharmacists in different states had different rules about when they could swap a brand drug for a generic. Some couldn’t substitute at all. Others had to check with the doctor every time. TE Codes changed that.

The code itself is simple: one or two letters. But each letter carries weight. If a drug has an “A” code, it means the FDA has reviewed it and found it to be therapeutically equivalent to the brand-name version. That’s the green light for substitution. If it’s a “B” code, the FDA says it’s not equivalent-either because the generic doesn’t absorb the same way in the body, or because it has different inactive ingredients that affect performance. In that case, the pharmacist must give you the brand unless the doctor says otherwise.

These codes are more than just guidelines. All 50 U.S. states use them as the legal basis for automatic generic substitution laws. That means if your prescription is for a drug with an “A” rating, your pharmacist can-and often will-give you the cheaper generic version without calling your doctor. This system is why over 90% of prescriptions filled in the U.S. are for generics today.

How the FDA Determines Therapeutic Equivalence

The FDA doesn’t just guess whether a generic works the same. It requires proof. For a drug to get an “A” rating, it must meet three strict criteria:

1. Pharmaceutical equivalence: The generic must have the same active ingredient, strength, dosage form, and route of administration as the brand. If the brand is a 10mg tablet taken by mouth, the generic must be exactly the same.
2. Bioequivalence: The generic must deliver the same amount of active ingredient into your bloodstream at the same rate. This is tested in clinical studies where volunteers take both the brand and generic versions. The FDA requires the generic’s absorption levels (measured as AUC and Cmax) to fall within 80-125% of the brand’s. That’s a tight window-and it’s why most generics pass.
3. Clinical equivalence: The generic must produce the same therapeutic effect and safety profile under normal use conditions. This is usually inferred from the first two criteria, but for complex drugs, the FDA may require additional data.

For example, a generic version of atorvastatin (the active ingredient in Lipitor) with an “AA” code means it’s a powder for oral suspension and has been proven equivalent. The “AA” tells you the form, and the “A” tells you it’s safe to swap. The same goes for “AP” (powder for injection), “AN” (injectable solution), or “AT” (topical cream).

These evaluations are done through the Abbreviated New Drug Application (ANDA) process, which lets generic manufacturers skip expensive clinical trials by relying on the brand’s safety data-so long as they prove bioequivalence. It’s how generics can cost 80-85% less than brand-name drugs.

What TE Codes Don’t Tell You

Despite their rigor, TE Codes aren’t perfect. They’re designed for simple, well-understood drugs. But they struggle with complex products.

Take inhalers. Two generic budesonide inhalers might have identical active ingredients and pass bioequivalence tests-but if the spray pattern, particle size, or delivery mechanism is slightly different, the drug might not reach the lungs the same way. In 2019, the FDA withdrew TE ratings for several generic inhalers after reports of inconsistent performance. The same issue came up with topical steroids and some injectables.

Narrow therapeutic index (NTI) drugs are another gray area. These are medications where even tiny differences in blood levels can cause serious side effects or treatment failure. Warfarin (a blood thinner), levothyroxine (for thyroid disorders), and phenytoin (for seizures) fall into this category. While many of these drugs have “A” ratings, some patients report feeling different after switching-even when the FDA says they’re equivalent. A 2022 study found that 12.7% of patients perceived changes after switching between TE-rated generics. For some, it’s a real issue. For others, it’s psychological. But the FDA acknowledges the concern and is exploring ways to improve evaluations for these drugs.

Also, TE Codes only apply to multi-source drugs-those with more than one manufacturer. If a drug has only one generic version (a “single-source” generic), the FDA doesn’t assign a TE Code because there’s nothing to compare it to. That means no automatic substitution rules apply.

How Pharmacists Use TE Codes Every Day

For pharmacists, TE Codes are part of the routine. When a prescription comes in, they check the drug’s TE rating in the Orange Book-either through their pharmacy software, the FDA’s online database, or a mobile app. If it’s an “A” code and the prescriber hasn’t marked “dispense as written,” they substitute automatically.

It’s fast. Most pharmacy systems flag the TE code right on the screen. The average time to verify a TE code is less than 30 seconds, according to the Pharmacy Technician Certification Board. And it’s accurate: 91% of U.S. pharmacists say they have high confidence in TE-rated substitutions.

Pharmacy schools now teach TE Codes as core knowledge. Nearly all new pharmacists pass the NAPLEX exam with strong scores on TE Code interpretation. And pharmacy benefit managers (PBMs), hospitals, and insurers all rely on TE Codes to design formularies and control costs.

But it’s not flawless. Sometimes, state formularies lag behind the latest Orange Book updates. In 2022, about 3.2% of substitutions were affected by these delays. The FDA’s Orange Book Help Desk handles around 1,200 questions a month to clear up confusion. And while the system is robust, it’s not meant to replace clinical judgment. If a patient has had a bad reaction to a specific generic, the doctor can-and should-write “do not substitute.”

Why TE Codes Save Billions

The financial impact is massive. Since 1995, TE Codes have helped save over $2.2 trillion in U.S. healthcare spending, according to former FDA Director Dr. Janet Woodcock. In 2022 alone, generic drugs saved patients and insurers an estimated $130 billion. That’s because a brand-name drug might cost $300 a month, while its TE-rated generic costs $20.

That price difference changes behavior. A patient who can’t afford Lipitor might skip doses-or stop taking it altogether. But with a $20 generic, they’re far more likely to stick with the treatment. That’s why TE Codes aren’t just about cost-they’re about access and outcomes.

Market data shows the effect: within six months of a generic entering the market with an “A” rating, the brand’s share drops from over 40% to under 25%. For non-TE-rated generics, the brand keeps nearly half its market. That’s the power of confidence.

What’s Next for TE Codes?

The FDA is working to expand the system. In 2022, it released new guidance to standardize how TE evaluations are done, especially for complex drugs. A pilot program is testing whether real-world patient data-like electronic health records and pharmacy claims-can help improve equivalence assessments.

Biosimilars (the biologic version of generics) are next. The FDA plans to introduce new TE-like codes for them by 2024. Right now, biosimilars are evaluated under different rules, but the goal is to create a similar framework so pharmacists can substitute them with confidence.

Industry experts predict that by 2027, over 93% of all prescriptions in the U.S. will be for TE-rated generics. That’s up from 90.1% today. But the real challenge isn’t technical-it’s perception. Some patients still believe generics are “weaker” or “inferior.” The data says otherwise. But education matters. That’s why the FDA runs monthly webinars and partners with pharmacy associations to spread the word.

What You Should Know as a Patient

If you’re on a chronic medication-like high blood pressure, diabetes, or thyroid medicine-chances are you’ve been switched to a generic. That’s normal. And if it’s a TE-rated product, you can trust it. The FDA doesn’t approve generics lightly. The science is solid.

But if you notice a change in how you feel after a switch-dizziness, fatigue, unusual side effects-don’t ignore it. Talk to your doctor or pharmacist. It could be a formulation difference, a psychological effect, or something unrelated. Either way, your feedback helps improve the system.

And if your doctor writes “dispense as written” on your prescription, that’s their choice. Maybe they’ve seen you respond better to one brand. Maybe they’re cautious with NTI drugs. Respect that. But if you’re paying more for a brand name and a generic is available with an “A” code, ask your pharmacist: “Is there a TE-rated generic I could use instead?” You might save hundreds a year.

TE Codes are one of the most successful public health tools in modern medicine. They balance safety, science, and savings. They’re not perfect, but they work-better than almost any other system in the world.