Why are generic drugs cheaper?

Why are generic drugs cheaper?

From yesterday’s Boston Globe (Dose of relief):

Generic drugs are identical to their brand-name counterparts and are their chemical equivalent. Generics, however, are cheaper because their manufacturers do not have to conduct years of clinical trials in humans to confirm safety and efficacy, and their firms do not spend millions on marketing.

Well, not exactly. Generic drugs are sold for lower prices because of competition among generic drug makers, each selling essentially the same product.

The manufacturing cost for generic products is essentially the same as for branded drugs. By the time generic products appear on the market, the brand name company has already amortized its research and development costs, so those costs no longer need to be figured into the cost of the drug. And companies don’t charge more because they “spend millions on marketing.” They spend millions on marketing in order to charge higher prices and gain market share.

The same results could be achieved through regulation, putting the generic industry out of business completely without affecting the consumer. For example, patent holders could be required to lower their prices by 80 or 90 percent on the day their patent expires, but keep selling the product. That would also make the FDA’s job simpler –it wouldn’t have to process applications from generic companies or keep an eye on them.

May 1, 2006

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