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Why Are Generic Drugs Cheaper Than Brand-Name Drugs?

You may be wondering how a generic drug can be sold at a much lower price than a brand-name drug.

The difference in price has to do with the different costs that drugmakers have in bringing generics and brand-name drugs to the pharmacy shelf.

Making a new drug is expensive for a drugmaker. A manufacturer's costs for the launch of a new drug include money for:

  • Research
  • Large-scale drug testing
  • Advertising, marketing, and promotion

The FDA has tried to balance the rights of the maker of brand-name drugs to recoup its investment with the rights of patients to have access to lower cost generic drugs. To help a drugmaker recover its costs, new brand-name drugs are given patent protection when they are first sold.

The patent gives a drugmaker exclusive rights to produce and sell the drug for a limited time. The average time a brand-name drug is protected by the patent after it hits the market is 12 years. 

When the patent ends, other companies are allowed to make and sell a generic version. The generic drugmaker's costs are relatively low because the product has already been developed and tested by the brand-name company.

So makers of generic drugs can pass the savings along in the form of lower prices to pharmacies, and ultimately, to us. The competition among multiple companies producing a generic version of a drug also helps keep the price low.

Are Any Groups Challenging the Safety of Generic Drugs?

Some groups have raised questions about the FDA requirements for proving a generic drug acts in the same way as the brand-name drug.

To prove a generic drug works the same way as a brand-name drug, the manufacturer needs to show that there is no significant difference in the rate and extent to which the drugs are absorbed into the body.

Scientists perform tests to measure this difference and describe the results in the form of a percentage. Most scientists agree that 20% is an acceptable variation in the way a drug is absorbed.

Some groups, though, claim that percentage is too large and could cause problems based on how much of the drug is in a person's system at any one time.

The FDA reports that there have been no problems recorded related to the variation in absorption for drugs that meet this requirement.

Also, the FDA has conducted two large studies to determine the actual variation in absorption between brand-name drugs and their generic versions. The studies show that the average variation is 3.5%. That's a variation that can be expected even between two separate batches of the same brand-name or generic drug.

Are There Situations That Require Special Consideration Before Choosing a Generic?

Some drugs -- known as NTI (narrow therapeutic index) drugs -- may need special consideration if you are thinking of using the generic version. NTI drugs have a narrow margin between the amount that is safe and effective and the amount that is toxic.