Eli5 – How do name brand drugs turn a profit?


Might sound like a loaded question, but hear me out.

In the Good ol’ USA, generic drugs are required by the FDA to have the exact same make up as the name brand drug (ie. Benadryl vs generic Diphenhydramine). I’d imagine this is also a requirement in other countries.

So how exactly do those companies turn a profit when a generic version of their drug can swoop in and undercut them?

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16 Answers

Anonymous 0 Comments

If you create the drug you get a limited period of time of exclusive production before anyone can copy your drug most of the profit comes from this time, later people are so used to taking the named drug that they are reluctant to switch to a cheaper alternative with some believing that the original drug is superior to the generic version.

Anonymous 0 Comments

They effectively copyright the drug; generics can’t be made right away when a drug is invented (unless the drug maker doesn’t patent it). Instead, they get to produce and make profits off the brand name for 20-30 years until the generic comes out.

See: my $300 Vyvanse prescription

Anonymous 0 Comments

Marketing is everything. With the correct PR team and advertisers, people will prefer the name brand they trust over the “simple generic option.” Few consider or know how the two are one in the same, rather preferring to stick with the name brand through brand-loyalty from advertising or previous experience.

Anonymous 0 Comments

Perceived trust and familiarity. Many people, consciously or not, perceive the “real” version as being better or in some other way more worthy of trust.

Anonymous 0 Comments

New drugs and new variants are patented. So the brand drugs have exclusive rights to the drug for a period, typically 20 years. In that time generic drugs are not allowed so the brand name drug can be sold at higher prices and also get to market the drug. When generic drugs are allowed to be sold these companies are far behind and need to catch up. Firstly it does take some investment to start producing the drug, the factories needs to be set up and the drug needs to be approved. These costs are already paid down for the brand name so they can get better margins. In addition the brand name is already widely known to doctors and even the public. Since generic drugs can not use this brand in their marketing it is much harder to get doctors to write out perscriptions in anything but the brand name. Even pharmacists might not know about the generic drug or think that it might be an inferior product.

In other countries it can be quite different. There are often limits in place for marketing towards doctors, and marketing towards the public is strictly forbiden. There might also be stricter requirements on doctors and pharmacists to use the generic name rather then the brand name and inform patients about the options. Most countries have a single payer health system which allow them to negotiate better prices for the brand drugs as well. If brand names want more money then the generic drug they often lose the contract and will become unavailable in that country. And even patented drugs where no generic drug is availbale might end up not being sold because they want too much money, the patients that would have gotten the drug will instead get other treatment.

Anonymous 0 Comments

Generics are only available after the original patent expires, which is 20 years. And every time they tweak the formula they can potentially extend the patent

many people also stubbornly refuse to use generics despite the lower cost

Anonymous 0 Comments

In addition to what everyone else said, naming matters. Most people know what benadryl is, but I imagine most people don’t know what the active ingredient is called (diphenhydramine). Some generic OTC formulations will say comparable to the active ingredient of benadryl or similar, but at a glance one is recognizable.

When talking about prescription drugs, some states actually by-default sub a generic equivalent unless you or your doctor say not to.

Anonymous 0 Comments

The same way that any other brand makes money: brand identity.

We’ve taught ourselves that the more expensive something is, the better it is. That’s the reason people pay a fortune for a pair of shoes with a red sole on them, or will favour one car over another when they’re made in the same factory with the same parts and the only real difference is the badge.

When someone invents a drug, they have a few years to sell it exclusively. They use this time to build up a brand identity before other companies can make it. After that, anyone can sell it, but they need to use the name of the drug rather than the brand name. So, by pushing the brand name when you have exclusive rights, you can shift people’s minds away from the actual content and on to the label.

There’s probably also a bit of a placebo effect here. If you give someone a drug (real or fake), the presentation can make a difference. They’ll feel a bigger impact if a nurse or doctor gives them the tablet than if they take it themselves, and a bigger impact still if they get an injection, say, even if the dosages are the exact same. We’re just more likely to respond to something if we believe in it more. So branded drugs actually can be better if people expect them to be better.

Anonymous 0 Comments

1. The companies who own the patents get a number of years of exclusive rights to sell the drug, so can set prices without market competition.

2. After the patent expires they need patients to be willing to go for the name brand, and preferably demand it when the doc prescribes it. This is the reason the marketing budget of many pharma companies is on par with, and sometimes exceeds, their R&D budget.

Anonymous 0 Comments

Because people still buy it.

It’s frankly that simple. Some people but name brand and only name brand even if it’s the same.

Some people don’t know ibuprofen and Advil are the same thing.

For the smart shopper you can save money. I bought a like 200 pack of off brand Tylenol like 2 years ago and it only ran out for the family a few months ago. And this is including me taking some to work and accidently losing them