Why Are Generic Drugs Cheaper?

Generic drugs are cheaper for a number of reasons. The
expiry of a patent allows free competition, which
immediately lowers the price.

Many different companies can now produce the drug and
compete to sell it, so they want to get the production
costs and profit margins down as low as possible
whilst still retaining profitability in order to
undercut their rivals.

Patent holders on the other hand have huge expenses in
developing a new drug so often place huge profit
margins in order to make this money back before the
patent runs out, they don’t need to lower the price of
their product as there is no competition as they are
the only ones allowed to produce the drug.

There are often lower costs in developing and testing
the drug for manufacture of generics as most of the
hard work has already been done by the original
developer and the company just has to prove to
regulators their drug is bioequivalent and contains no
harmful substances rather than go though lengthy
clinical trials.

They also receive benefits of the previous patent
holders marketing and often the drug is already well
known by the medical profession making it easier to
sell. The lower price may also open up new markets who
were priced out before.

Cheaper does not mean lower in quality as generic
drugs are just as tightly regulated as branded
alternatives.