Misconception 1: You Get What You Pay For
One common misconception is that brand-name medications are better because they cost more. People associate higher costs with higher quality. You get what you pay for, right? While that may be the case for other goods, it is not the case for medications.
Companies that manufacture brand-name medications have to invent the drug, file a patent, prove that it is safe and effective, and perform multiple studies in animals and humans before it is approved by the U.S. Food and Drug Association (FDA). Sometimes, drug development is halted before a product is approved due to safety or efficacy issues. On rare occasions, drugs are removed from the market after approval because of safety issues.
A company manufacturing a generic medication only has to prove that their product is equivalent to the brand-name product. It is assumed that all safety and efficacy data, as well as animal and human studies, from development of the brand-name product apply to the generic product.
As one can imagine, brand-name drug development is an expensive investment and is much more expensive than generic drug development. The brand-name company must recoup the costs of drug development for a given medication and other failed attempts at drug development and price their products accordingly.
Generic drug manufacturers can offer their medications at lower costs because their financial investment is less. In addition, any manufacturer can market a generic medication (given that they meet FDA requirements, of course), which fosters competition and promotes even lower costs for generic medications.