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Why are generic drugs cheaper than brand-name ones?

By Ranit Mishori,

Why are generics cheaper than brand-name medications?

Generic makers don’t face the same costs as manufacturers of brand-name drugs. That’s because the brand-name maker often invented the drug, a process that can cost hundreds of millions of dollars. This is the rationale behind drug patents: They give pharmaceutical companies a period of years when only they can make money on a product in which they have made a large investment. That investment also includes advertising: all those TV commercials and billboards at bus stops.

For a generic manufacturer, no such investment is required — not in development and not in marketing. The drug’s formula is known, the clinical trials are complete; the generic maker’s only requirement is to demonstrate to regulators that its version is as good and effective in humans as the original.

That is an enormous economic advantage for these companies, which is why their drugs can be much cheaper.

The greatest disadvantage for these drugmakers may be their lack of an advertising budget. You generally don’t see ads for generics. It is perhaps this lack of exposure and gloss that make generics “less cool” to patients, says William Shrank, an assistant professor of medicine at Harvard Medical School. “It is hard to sell something that’s ‘as good but less expensive.’ It does not have the same sexiness.”

Ranit Mishori

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