Why are generic medications cheaper than brand-name medications?
Generics are cheaper because generic drug manufacturers do not have to cover research and marketing expenses of bringing a new drug to market. A lot of manpower and money are involved in developing and marketing a new medication - costs that generic drug manufacturers do not have to cover. For example, a large team of scientists is needed to research and identify potential new medications. Once a potential medication is identified, a team is needed to determine how the medication may look and taste. How about a name for the new drug? A marketing group may be responsible for determining a brand name that will be easy to say and remember.
Various phases of testing, called clinical trials, need to be conducted to ensure the medication is safe and effective for use in people. Salespeople are needed to travel to physician offices to educate the physicians on the new medication. Advertising is needed to let health professionals and the public know about the new medication.
This entire process requires hundreds of millions of dollars (approximately a half-billion dollars for a single new medication). As a result, drug manufacturers must cover the expenses of creating and marketing the brand-name medications, so the finished product often is quite costly. Once the new medication is developed, the Food and Drug Administration (FDA) conducts an approval process before granting the manufacturer a patent on the new medication. This patent protection period allows the manufacturer to recoup the investments it has made during the research and development of the new medication.
Patent limits and competition from generics
Every medication is subject to a limited patent life. The traditional patent protection timespan is usually 17 years. In reality though, the patent period is much shorter (approximately seven years) due to the extended length of time required to bring new medication to market. After the patent expires, other drug companies can produce and sell a generic equivalent of the brand-name medication once they receive FDA approval. Since the generic manufacturers do not have to bear the initial cost of research and development, the generic medications are less expensive than the original brand-name medication. In addition, more than one company can produce a generic version, resulting in price competition, which also drives down the price of generic medications.