Why branded drugs cost way more than their generic counterparts

Once upon a time (before the 1960s), the world was a lot simpler and medicines were too.

The medicines available in the market then were all branded and each manufacturer of medicine had their own way to prepare a certain drug. The law at the time in USA and Europe required that medicines should maintain the manufacturing process as per the manufacturer’s specification. No safety, efficacy or quality data were required to be submitted to the authorities by the manufacturer prior to marketing the drug.

The Sulfanilamide Elixir Disaster (1937), Thalidomide Tragedy (1950–60s) as well as contamination of various vaccines in the first half of the 20th century brought focus on the need for safety, effectiveness and cost-benefit analysis of using powerful drugs in various diseases. This concern ran parallel to the exponential rise in the development of new drugs especially new antibiotics.

Representational image. Getty Images

Representational image. Getty Images

In the 1960s, the USA changed it’s laws which then required drug manufacturers to demonstrate that a particular drug works as they claim it would before they could sell on the market. This was the birth of the modern avatar of United States Food and Drug Administration (USFDA) (though the body was originally established in 1906). The evidence of effectiveness demanded by the USFDA gave rise to extensive clinical trials which in turn encouraged scientific rigor through evidence based medicine (EBM). In addition to basic science research to discover new drugs, clinical trials required thousands of patients to be administered the drug to be tested and proof of efficacy of a medicine established scientifically. The results were to be submitted to the regulatory body for approval. Today costs of developing a new drug and conducting clinical trials runs into millions and sometimes billions of dollars- The Cost Of Creating A New Drug Now $5 Billion. So when a successful drug comes through this long winded and expensive process, companies try to recover the R&D costs by selling those drugs at huge profit margins before the drug patent expires (typically about 10–20 years depending on the country and less than that in some countries). This is why branded drugs are expensive when a new drug comes in the market. So the high price of branded drugs comes down to market economics and the society’s need for the invention of new and effective drugs. It is watered down to this simplified axiom- No profits→ no R&D; No R&D→ no new drugs discovered.

The new regulations spread to the rest of the world. Most industrialized countries accepted it and evidence based medicine became the global standard. To ensure ethical and safe clinical trials, Helsinki Declaration was drafted in 1964 which brought in new rules to follow with regard to clinical trials. The clinical trials also created a difficult entry threshold for new companies to bring new products to the market since most of the new companies couldn’t afford either good quality basic science research or the ever increasing costs of clinical trials.

In 1984, USA changed it’s drug regulatory laws again to regulate those manufacturers who manufacture the proprietary drug after it’s patent had lapsed. The new laws were aimed at simplifying the process, preventing reduplication of established results and for reducing cost threshold for new entrants. These new regulations didn’t require the new manufacturers to repeat the expensive clinical trials of the original molecule but instead mandated that the new companies conduct and submit Bio-equivalence (BE) and Bio-availability (BA) studies to USFDA for approval of the drugs. The USFDA was also proactively involved in the enforcement of the good manufacturing practices in the factories even before BE/BA reports were filed. This ensured that quality was maintained throughout the whole process. These rules were again readily accepted by drug regulatory authorities throughout the world. This was the birth of the generic medicines market.

Bio-equivalence studies are tests to show that a generic version of the drug works just as well as the original formerly patented drug. Bio-availability studies conducted to ensure that the available active ingredient of the drug in the body is the same that provided by the original molecule. These studies typically require only a few hundred healthy volunteers. The costs of such studies are obviously much lower than full fledged clinical trials. This is why generics are so cheap. The manufacturers don’t have to spend as much as the big pharma giants to bring these new drugs to the market. It was a win-win for both the pharma companies as well as the consumers- who now had to pay less for their medicines. It seemed like an ideal solution to rising costs of healthcare but a disaster was lurking in the background waiting to show it’s ugly head.

The ugly side of the generic medicine manufacturing and regulation (India perspective)

The introduction of generics and its proper regulation (BE/BA reports) ensured that European and American markets received good quality generics at lower costs supplied to their population. However poor laws and regulation in developing countries ensured that corners were cut resulting in low quality generics and contaminated drugs finding their way to patients especially in countries with large populations (India &China) and even poor countries of Africa (where even recording of drug-related deaths were absent). In India, the generic manufacturing boomed in the 80s and 90s due to lax laws and socialistic tendencies of successive governments which were only bothered about reduction in drug prices but not quality of the drugs manufactured. India now is placed 4th in the global generics market but leads the race in the global burden of counterfeit medicines as 75% of all counterfeit medicines traces it’s roots to India followed not very closely by Egypt (7%) and China (6%). The greed for cashing in on the foreign developed markets has resulted in reputed Indian pharma giants like Ranbaxy, GVK Biohealthcare, Dr. Reddy’s Laboratories being proven guilty of submitting fabricated BA/BE studies to push generics into the international markets. They pleaded guilty in the courts and had to givemillions of dollars in settlements.

Only this year ( April 2017) did the Indian government enact amendments to the Drug and Cosmetics Act (1940) which made it mandatory for manufacturers to submit BE/BA reports for approval of generic medicines into the market. How seriously these rules would be enforced remains to be seen. The earlier regime only required BE/BA reports for generics of those patented drugs approved by the Drug Controller General of India (DCGI) within the first four years of introduction of the innovator drug. Beyond that no generics manufacturer required to submit any BE/BA reports to sell their drugs in the markets. Only the finished drugs are sometimes submitted for testing at the Central Drugs Standard Control Organization (CDSCO) and there is no regulation ensuring of good manufacturing practices presently. Currently only 0.01% of the drugs in the Indian marketare even tested. Some of the generics are not even tested on basic effectiveness so they don’t even have to put in an active ingredient which gives retailers sometimes 1000% profit margins. Due to such lax rules and regulations- substandard, contaminated and sometimes toxic drugs end up even in government generic medicine supplies.

When such generics produced with dubious manufacturing processes fail to pass muster in developed countries due to their strong regulatory authorities, they end up in remote domestic markets in India and several poor African countries. These substandard or fake drugs do not cause direct drug related deaths but by increase in deaths by not curing the disease as well as increase in multi-drug resistant strains in the community. For example in Tuberculosis, if drugs with low effective doses or no active ingredient is given, it doesn't cure the disease and increases incidence of drug resistant tuberculosis in the community. The deaths caused by this is attributed to multi-drug resistant tuberculosis strains while the real culprit is the substandard medicines supplied earlier. Similarly many strains of antibiotic resistant strains of bacteria develop in such countries increasing disease burden in the community as well as making such infections difficult to treat. The Delhi Superbug is the result of such inadequacies as well as rampant unhindered use of antibiotics in the country.

There are three types of drugs in the market at present.

— Branded drugs which have brand names and is marketed/advertised to doctors and hospitals by reputed established companies.

— Branded generic drugs which are also manufactured by reputed companies but are dependent on retailers/chemists to drive sales.

— Unbranded generics which are manufactured from lesser known companies and many of them indulging in bad manufacturing processes and even sometimes not putting in the active ingredient of a particular drug.

Recently the Medical Council of India (MCI) issued a directive that all registered practitioners of modern medicine should write only chemical names in their prescriptions. On it’s own it is not a bad move and it was intended to fix the physician- pharma nexus that is deeply entrenched in India. However with such a poor regulatory regime in India it probably does more harm than good. The authority to dispense medicines has shifted from the doctor to often unqualified employees/owners of chemist shops and alternative medicine practitioners (because they are not bound to the MCI directive and can do what they want). This in my opinion is quite a dangerous trend. I recently wrote an article about my views on this new directive.

Whether a particular drug is branded or generic, it’s efficacy and safety profile should be the same. Often with the intention to reduce costs of medicines, less ethical means are taken to that end. If drug regulation is poor, unethical businessmen will stop at nothing to increase their profit margins. Our focus should not only be in reducing costs of drugs but more on ensuring that quality and reliable safe drugs reach the end consumers-the patients. The Indian government could do well to understand this aspect-so poignantly described this letter to US President Franklin D Roosevelt in 1937 by a woman describing the death of her child after a toxic drug consumption:

"The first time I ever had occasion to call in a doctor for [Joan] and she was given Elixir of Sulfanilamide. All that is left to us is the caring for her little grave. Even the memory of her is mixed with sorrow for we can see her little body tossing to and fro and hear that little voice screaming with pain and it seems as though it would drive me insane. ... It is my plea that you will take steps to prevent such sales of drugs that will take little lives and leave such suffering behind and such a bleak outlook on the future as I have tonight."

Published Date: Apr 29, 2017 10:10 am | Updated Date: Apr 29, 2017 10:14 am