Final answer:
Generic drugs are cheaper because they do not include the initial R&D costs that brand name companies face, they have competition which keeps prices low, and they do not need to undergo extensive clinical trials for FDA approval thanks to ANDAs.
Step-by-step explanation:
Generic pharmaceuticals are significantly cheaper than name brand drugs primarily due to the absence of the initial research and development costs incurred by the brand name companies. When patents expire for brand name drugs, other companies can produce generic drugs that are chemically equivalent without having to repeat costly clinical trials or marketing expenses.
The competition in the market with multiple manufacturers also helps to keep the prices of generic medications low. Generic drugs require Abbreviated New Drug Applications (ANDAs) for approval from the U.S. Food and Drug Administration (FDA), which ensures they are therapeutically equivalent to their brand name counterparts but does not require the same broader scope of research and trials that new brand name drugs must undergo.
The generic drug scandal of 1989 highlighted the importance of the FDA's role in ensuring that the process of approving generic drugs is carried out without corruption, further reinforcing the credibility of generics in terms of their safety and efficacy once they reach the market. Despite the lengthy and rigorous FDA regulation processes for all medication, often leading companies to spend years in testing a drug before market release, the ability to produce generics afterwards somewhat eases the financial burden on the healthcare system and patients by providing more affordable options.