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Why generics prescription drugs cost less

One reason generic drugs are less expensive is because generic manufacturers don’t have the investment costs of the developer of a new drug.

The patent protects the original name brand company’s investment – including research, development, marketing, and promotion – by giving the company the sole right to sell the drug while the patent is in effect.

As patents near expiration, other manufacturers can apply to the FDA to sell generic versions. Because those manufacturers don’t have the same development costs, they can afford to sell their product for less.

Also, once generic drugs are approved, competition grows, which keeps the price down.

It’s not the cost of the pill itself

The real cost of making most tablets or capsules is between 5 and 20 cents, according to industry experts. The big expense is in bringing a new drug to market.

One study estimated the cost of developing a drug, clinical trials, and studies to make sure it’s safe and effective can add up to more than $800 million.

And when a single manufacturer has exclusive rights to sell a new drug, that company may charge whatever the market will bear.

As seen on TV

Just because a drug appears in magazine or television advertising doesn’t mean it’s a better choice, but some consumers may think brand names are superior – especially the ones that appear around their favorite shows.

The ads encourage consumers to ask their doctors for the latest new drugs – not the older ones that have already proved themselves effective, and are available as cheaper generics.

Prescription-drug advertising is big business. The pharmaceutical industry in 2006 spent $4.8 billion on consumer ads, according to IMS Health, a private firm that tracks sales and marketing. The industry spent $7.2 billion more marketing products to doctors.

Some experts believe advertising can push patients to take more expensive, newer drugs, when lower-cost generics would work just as well.

Ask questions

Be sure your doctor knows you want the best medication for you – but you expect to keep the relative cost in mind.

If you have concerns about the quality of generic drugs, discuss them with your doctor, your pharmacist, and your health insurance provider.

Frequently asked questions about generic drugs

Here are some frequently asked questions about generic drugs and answers from the U.S. Food and Drug Administration (FDA):

Q: What are generic drugs?

A: A generic drug is a copy that is the same as a brand-name drug in dosage, safety, and strength, how it’s taken, quality, performance, and intended use.

Q: Are generic drugs as safe as brand-name drugs?

A: Yes. The FDA requires that all drugs be safe and effective. Since generics use the same active ingredients and are shown to work the same way in the body, they have the same risks and benefits as their brand-name counterparts.

Q: Are generic drugs as strong as brand-name drugs?

A: Yes. The FDA requires generic drugs to have the same quality, strength, purity and stability as brand-name drugs.

Q: Do generic drugs take longer to work in the body?

A: No. Generic drugs work in the same way and in the same amount of time as brand-name drugs.

Q: Why are generic drugs less expensive?

A: Generic drugs are less expensive because generic manufacturers don’t have the investment costs of the developer of a new drug. New drugs are developed under patent protection. The patent protects the investment – including research, development, marketing, and promotion – by giving the company the sole right to sell the drug while it is in effect.

As patents near expiration, other manufacturers can apply to the FDA to sell generic versions. Because those manufacturers don’t have the same development costs, they can sell their product at substantial discounts. Also, once generic drugs are approved, there is greater competition, which keeps the price down. Today, almost half of all prescriptions are filled with generic drugs.

Q: Are brand-name drugs made in more modern facilities than generic drugs?

A: No. Both brand-name and generic drug facilities must meet the same standards of good manufacturing practices. The FDA won’t permit drugs to be made in substandard facilities. The FDA conducts 3,500 inspections a year to ensure standards are met.

Generic firms have facilities comparable to those of brand-name firms. In fact, brand-name firms are linked to an estimated 50 percent of generic drug production. They frequently make copies of their own or other brand-name drugs but sell them without the brand name.

Q: If brand-name drugs and generics have the same active ingredients, why do they look different?

A: In the United States, trademark laws do not allow a generic drug to look exactly like the brand-name drug. However, a generic drug must duplicate the active ingredient. Colors, flavors, and certain other inactive ingredients may be different.

Q: Does every brand-name drug have a generic counterpart?

A: No. Brand-name drugs are generally given patent protection for 20 years from the date of submission of the patent. This provides protection for the innovator who laid out the initial costs – including research, development, and marketing expenses – to develop the new drug.

However, when the patent expires, other drug companies can introduce competitive generic versions, but only after they have been thoroughly tested by the manufacturer and approved by the FDA.

Q: What is the best source of information about generic drugs?

A: Contact your doctor, pharmacist, or insurance company for information on your generic drugs.

Also read: Why name brand drugs usually cost more.

Watch Healthcare Video: Why do some drugs cost more than others?