Why are generic drugs less expensive?
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, 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.
Generics cost less because they do not share the expense of the initial investment the original manufacturer incurred to research and develop the drug, nor the sales and marketing costs associated with brand names. As patents near expiration, 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. On average, a generic drug costs 30 percent to 80 percent less than its brand counterpart. Today, almost half of all prescriptions are filled with generic drugs.
New drugs are protected by a patent for up to twenty years. Until the patent expires, no other company can produce the same drug, and the drug company can charge whatever it wants. When the drug patent expires, other companies can begin to make the drug as a generic. The competition between companies brings the price down. Generics usually cost 3075 percent less than a brand-name drug. In 2004, the average price of a generic drug was $28.74. The average price of a brand-name drug was $96.01. Generic drugs save consumers approximately $810 billion each year. A recent study showed that consumers could save an additional $8.8 billion each year by using generic drugs whenever available.
