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 will work the same as the brand-name version. But behind every generic pill, capsule, or injection is a strict scientific evaluation that determines if it’s truly interchangeable. That’s where Therapeutic Equivalence Codes (TE Codes) come in.

What Are TE Codes and Why Do They Matter?

Therapeutic Equivalence Codes are a standardized system used by the U.S. Food and Drug Administration (FDA) to tell pharmacists and doctors which generic drugs can be safely swapped for brand-name versions-or for other generics-without affecting how well the medicine works. These codes are published in the FDA’s Orange Book, officially called Approved Drug Products with Therapeutic Equivalence Evaluations.

The system was created in 1984 after the Hatch-Waxman Act, which made it easier for generic drug companies to bring affordable versions of brand-name medicines to market. Before TE Codes, pharmacists had no clear guidance on which generics could be substituted. Some states allowed substitution, others didn’t. TE Codes fixed that by creating a single, science-based rulebook used nationwide.

The bottom line? TE Codes help save money without sacrificing safety. Generic drugs with an ‘A’ rating typically cost 80-85% less than their brand-name counterparts. In 2022, Americans filled over 6 billion generic prescriptions-most of them TE-rated. That’s billions of dollars saved every year.

The TE Code Alphabet: What Do the Letters Mean?

TE Codes are short, two- or three-letter labels assigned to multi-source drugs. They look simple, but each letter carries specific meaning.

The first letter is the most important:

• A means the drug is therapeutically equivalent to the brand-name version and other generics with the same code. These can be substituted without hesitation.
• B means the drug is not considered equivalent. This could be because of differences in absorption, formulation, or stability. Pharmacists cannot substitute these without a doctor’s permission.

The second letter gives more detail about the drug’s form and how it was evaluated:

• AA: Powder for oral solution (like some antibiotics)
• AN: Injectable solution
• AO: Oral solution
• AP: Powder for injection
• AT: Topical cream or ointment

For example, a generic version of levothyroxine (used for thyroid conditions) might carry the code AA. That tells the pharmacist it’s been tested and approved as interchangeable with the brand, Synthroid, and other AA-rated generics.

The FDA doesn’t just guess whether a generic works. To earn an ‘A’ rating, a drug must pass three tests:

1. Pharmaceutical equivalence: Same active ingredient, strength, dosage form, and route of administration.
2. Bioequivalence: The body absorbs the generic at the same rate and amount as the brand. This is proven through blood tests showing the generic’s concentration in the bloodstream falls within 80-125% of the brand’s.
3. Clinical equivalence: No meaningful difference in safety or effectiveness under normal use conditions.

Only drugs approved under the Abbreviated New Drug Application (ANDA) pathway are routinely evaluated. That’s the fast-track route for generics. Newer drug types, like 505(b)(2) applications, may need special review.

How TE Codes Compare to Other Systems

The U.S. system is unique in its level of detail and legal integration. In Europe, the European Medicines Agency (EMA) doesn’t use a universal coding system. Instead, individual countries decide what can be substituted. In Canada, pricing boards track equivalence but don’t assign standardized codes like the FDA does.

Germany takes a different approach entirely: doctors, not pharmacists, decide whether a generic can be swapped. In the U.S., pharmacists are legally allowed to substitute TE-rated drugs unless the prescriber writes “Dispense as Written” or “Do Not Substitute.”

This makes the U.S. TE Code system one of the most efficient in the world for enabling automatic substitution. It’s why 90.1% of all prescriptions filled in the U.S. are for generics-and why 97% of hospitals use TE Codes to guide therapeutic interchange programs.

Where TE Codes Work-and Where They Don’t

TE Codes are incredibly reliable for simple, well-understood drugs. Take atorvastatin (the generic for Lipitor). A 2021 study in JAMA Internal Medicine found no difference in LDL cholesterol reduction between multiple TE-rated versions. Patients switching between generics saw the same results.

But not all drugs are created equal. Some complex formulations don’t fit neatly into the TE Code system.

Inhalers, for example, are tricky. Even if two generic inhalers have the same active ingredient and dose, differences in the propellant, nozzle design, or particle size can affect how much medicine reaches the lungs. In 2019, the FDA withdrew TE ratings for several generic budesonide inhalers after reports of inconsistent delivery. The same applies to some topical steroids and extended-release tablets.

Narrow therapeutic index (NTI) drugs are another concern. These are medicines where even small changes in blood levels can cause serious side effects or treatment failure. Warfarin (a blood thinner), levothyroxine, and some anti-seizure drugs fall into this category. While most TE-rated versions are safe, some patients report feeling different after switching-even when clinical tests show no difference. A 2022 study in The American Journal of Managed Care found 12.7% of patients believed their medication stopped working after a generic switch. Most of these cases had no clinical basis, but the perception matters.

The FDA acknowledges these gaps. In its 2022 guidance, it stated clearly: “Therapeutic equivalence evaluations are product-specific and do not imply equivalence across all possible clinical scenarios.”

How Pharmacists Use TE Codes Every Day

Pharmacists don’t memorize codes. They check the FDA’s online Orange Book database-or their pharmacy software, like Epic or Cerner, which pulls TE ratings automatically. When a prescription comes in for a brand-name drug, the system flags if there’s a TE-rated generic available.

The process adds less than 30 seconds to each prescription, according to the Pharmacy Technician Certification Board. Over 98% of 2022 pharmacy graduates passed the NAPLEX exam with full proficiency in TE Code interpretation.

Most pharmacists trust the system. A 2022 survey by the National Community Pharmacists Association found 91% have high confidence in substituting TE-rated drugs. One pharmacist on Reddit wrote: “The AA code for levothyroxine has eliminated so many insurance coverage headaches.”

But patients sometimes notice differences. A Drugs.com thread from early 2023 had 87 reports of issues with substituted warfarin products. While lab tests showed no change in INR levels, patients reported fatigue, dizziness, or bruising. These aren’t failures of the TE system-they’re reminders that real people respond differently to medicines.

The Bigger Picture: Cost, Savings, and the Future

TE Codes are the backbone of the $130 billion U.S. generic drug industry. Since 1995, they’ve helped save over $2.2 trillion in healthcare costs, according to former FDA Director Dr. Janet Woodcock.

Brand-name drug makers lose market share fast once a generic enters the market. Within six months, a TE-rated generic typically captures 76.5% of prescriptions. Without TE Codes, that number would be far lower.

The FDA is working to improve the system. In 2023, they announced a pilot program to use real-world patient data-like electronic health records and patient-reported outcomes-to inform future TE evaluations. They’re also developing new codes for biosimilars (biologic generics), expected to launch in 2024.

Industry analysts predict that by 2027, 93.4% of all prescriptions in the U.S. will be for TE-rated generics. That’s up from 90.1% today.

The goal isn’t just to cut costs. It’s to make high-quality medicine accessible to everyone. TE Codes make that possible.

What Patients Should Know

If you’re prescribed a generic drug, it’s likely TE-rated-and safe to use. But if you’ve had issues after switching-feeling different, side effects popping up, or your condition seeming less controlled-talk to your doctor or pharmacist. Don’t assume it’s all in your head.

You can always ask for the brand name if you’re concerned. But in most cases, the generic will work just as well. And if your insurance requires a generic, TE Codes ensure you’re getting a product that’s been scientifically proven to do the job.

The system isn’t perfect. But for the vast majority of medications-blood pressure pills, statins, antibiotics, diabetes drugs-it’s one of the most reliable tools in modern medicine.