Drug Policy

Generic drugs, also known as generics, are medications produced and distributed without patent protection. While a generic drug may still have a patent on its formulation, it does not have exclusivity on the active ingredient. Essentially, generics must contain the same active ingredients as the original brand-name formulation.

Now, let’s delve into why generics are significantly cheaper than their brand-name counterparts:

  1. Development Costs: When a pharmaceutical company develops a new drug, it invests substantial resources in research, clinical trials, and regulatory approvals. These costs can run into hundreds of millions to billions of dollars and take 10-15 years1. In contrast, generic manufacturers do not bear these initial development expenses.

  2. Advertising and Marketing: Brand-name drugs require extensive advertising and marketing campaigns to establish their presence in the market. These promotional efforts come with hefty price tags. Generics, on the other hand, rely less on marketing and pass those savings on to consumers.

  3. Patent Exclusivity: Brand-name drugs enjoy a period of exclusivity due to patents. In the United States, drug patents typically provide 20 years of protection. However, patents are often applied for before clinical trials begin, so the effective patent life tends to be 7-12 years. Once the patent expires, other companies can produce generic versions.

  4. Cost of Innovation: While estimates vary, the cost of discovering and testing a new innovative drug (with a new chemical entity) for brand-name companies can range from $100 million to $200 million or more. The widely cited figure of $800 million includes additional factors beyond direct research costs1.

  5. Market Competition: When generic versions become available, market competition intensifies. This leads to lower prices for both the original brand-name product and its generic counterparts. Generic manufacturers can produce the same drug at a fraction of the cost, benefiting consumers.

  6. Evergreening Strategies: Brand-name companies employ tactics to extend their market exclusivity. One such strategy is litigation to preserve or extend patent protection, a practice critics refer to as “evergreening.” By doing so, they delay generic competition.

In summary, generics offer the same therapeutic effects as brand-name drugs but at a significantly reduced cost. However, it’s essential to note that while most generics are as effective as their brand-name counterparts, there may be exceptions for drugs with a narrow therapeutic index (NTI). These drugs require careful dosing, and minor variations can lead to toxicity.

Generic pills are cheaper because:

The production doesn’t require a new formula or production technology (existing ones are used instead by reverse-engineer known drug compounds).

Generic pills are bio-equivalents of the brand drugs and therefore they don’t need the additional advertising. In fact they receive the benefit of the previous marketing efforts of the brand-name drug company, including media advertising, presentations by drug representatives, and distribution of free samples.

Generic manufacturers also do not bear the burden of proving the safety and efficacy of the drugs through clinical trials, since these trials have already been conducted by the brand name company.

That is why generic pills are cheaper and are so popular. These save the patients and insurance companies substantial costs.