May 22, 2024

We’ve all had experiences with buying the cheaper, “store-brand” version of brand-name groceries. In some cases, the products have been indistinguishable (with good reason – the same factory that produces the name-brand pickles may pack exactly the same pickles in a jar with the store brand on it).  In other cases, the store-brand version may be inferior, or at least significantly different (“Howcome my ‘Tasty-Os’ don’t taste like real Cheerios?”).

By the same logic, some people are hesitant in trusting their health to “generic” medications, on the assumption that there’s the same quality gamble involved.

However, the production and sale of generic medications is very different from the production of the “Fruitie Loops” that don’t taste as good as the real thing.

How Do Drugs Become Generic?

Long ago, there were three useful drugs: Penicillin, aspirin, and chicken soup.  Pretty much everything since has been discovered or created by pharmaceutical companies.

Finding a new drug which treats a particular condition as well as or better than current therapies is a long and expensive process.  In the first place, all of the “obvious” pharmaceuticals have already been discovered and marketed; penicillin is a derivative of bread mold, and aspirin originally came from willow tree bark. Finding or creating new chemical compounds which might have therapeutic properties, after all of the “low-hanging fruit” has already been brought to market, is a long and tedious project.

Then, first with animal testing, then with human volunteers, the company has to conduct rigorously monitored studies – not only to show that their new drug is an effective therapeutic compared to other treatments available, but its benefits outweigh any side effect, either short- or long-term.

All of this comes under the heading of “Research & Development” (R&D).   And it costs. A lot.  And that would be even if every potentially therapeutic drug panned out: It did well in the studies, it worked better than whatever’s out there, and it was submitted to the Food & Drug Administration (FDA) for approval.

But for every drug that goes on to become marketable and useful, there are multiple failures, drugs which initially showed promised but didn’t do the job for a high enough percentage of people in the study, or whose side effects outweighed the potential benefits.  Those are all red ink on the balance sheet.

To encourage pharmaceutical companies to gamble those resources on R&D, the FDA grants the manufacturer of a new drug an “exclusivity period,” in which only that company will be approved to market and sell that specific chemical drug.  Generally the exclusivity period is five years, although there are circumstances which can extend it.

At the end of that five-year period, the FDA will allow other pharmaceutical companies to market and sell a bio-identical version of that drug (usually under the actual chemical name, instead of the brand name which the originating company has been using).

But in order to do that, the generic manufacturer has to demonstrate to the FDA that their version is chemically bio-identical – it looks the same under the microscope, and it has the same effect in treatment. (Yes, that means further clinical trials in which the manufacturer of the generic drug demonstrates the therapeutic equivalence of its version to the original brand-name drug.)

In other words, although the introduction of a generic drug doesn’t involve the same initial R&D expenses of the original brand-name drug, the FDA insists on the same level of quality control required for the name-brand drug.  And because the generic manufacturer doesn’t have the costs of all the R&D expenses to cover, it can usually offer the generic version at a significantly lower price.

What Affects a Drug’s Cost?

There are three main factors which combine to result in the cost of a drug:

  • R&D costs to develop the drug (explored above). These costs largely aren’t shared by generic equivalents.
  • Actual manufacturing cost of the drug. Some chemical compounds require far more costly procedures to create or refine, or to store and transport (for instance, some drugs can only be packed in a factory-sealed delivery mechanism, or some must be kept at certain temperatures all through transport and storage).  These costs don’t change between brand-name and generic drugs; that’s why the generic equivalents of some astronomically priced name-brand drugs have price tags that are still surprisingly high; there simply may be no way to make the drug more cheaply.
  • Market forces and profit considerations. This is the hardest factor to quantify, and the source of most of the criticism of “Big Pharma.” Especially for a name-brand drug for which there is no generic equivalent yet, it’s in the company’s financial interest not just to charge what will cover its past R&D, but to raise their prices to whatever the market is willing to pay.  (And because third parties, both private and government-sponsored coverage, can shield the consumer from seeing the actual price charged for drugs, it’s often unclear to the end-user what the manufacturer is charging.) Generic drugs can act as a corrective to this, especially if more than one company is producing a generic equivalent; market pressures can reduce the price of both the original brand-name drug and the competing generic versions.

So Is the Generic Version Guaranteed to Be Absolutely, Completely Identical?

Well, not exactly.

The actual drug must be demonstrated to the FDA to be bio-identical.  However, most drugs are a combination of the actual chemical drug compound, plus inactive ingredients to make the actual pill or capsule. (Do you know how small a milligram is?  It’s one one-thousandth of a gram, which is about the weight of a paperclip. Often there have to be inactive ingredients just to make the pill large enough to pick up.) In very rare cases, people can have allergic or other reactions to the inactive ingredients in the generic but not the name-brand, or vice versa.

Most insurance plans will not cover the brand-name drug if a generic equivalent is available. However, if your provider can show to the insurance carrier that you react poorly to the generic but not to the brand-name, exceptions can often be made.

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