Brand-Name vs. Generic Drugs

• You can purchase prescription brand-name SSRIs like Zoloft or Prozac for a copay of around $30 to 50 per prescription. Meanwhile, you can buy Zoloft generic (under the drug name sertraline) for a $10 copay. If generic drugs are the same as brand-name drugs, what is going on? Generic drugs are FDA approved to include the same active ingredients at the same strength and are produced in state-of-the-art facilities that are inspected by the FDA, so strict production cost is actually pretty close to the same for both the brand-name drug and the generic. As we shall see, the true change in price between generics and brand-name drugs is because of the prior investment of the brand-name drug: bringing a drug to market is an expensive procedure requiring millions of dollars in capital.
  
  

Patents and the Drug Development Process

• Brand-name drugs are developed to make money, and under the patent system in the United States, inventors and innovators are to be rewarded. It costs millions to bring a drug to market: research and development, market tests and FDA-approved clinical trials. These costs are up front before the company earns a dime. In return for their innovation, the company is awarded a patent, which gives them exclusive right to market and sell their product for a certain number of years (typically 17 for U.S. drug patents). During this time, no generics are allowed to be sold in the United States, and the high price of the original drug is the consumer's only choice.
  
  

End of the Patent: Generics on the Market

• Once the patent for the drug is up (or more specifically, once the patent for the active ingredient is up), other firms can begin producing their own versions for market. These versions are FDA approved to be biologically the same as the other drugs, although certain inactive ingredients are typically changed, occasionally resulting in a different-looking pill or a different flavor. The FDA inspects other nation's drug production facilities to make sure that the medicines are being produced with the strictest standards of health and sanitation in mind and makes these firms apply for FDA approval as a generic. However, these new start-up firms only incur a small portion of the cost of the original development. They essentially pay only for production costs and not for research, patents and clinical trials, meaning that they can afford to charge a far lower price than brand-name medications. The FDA estimates that 44% of all prescriptions in the United States are now filled by generics. However, some people may still purchase more expensive brand-names despite the availability of generics because of a fallacious belief that the brand name is better than the generic.