[the_crocodile]

Manufacturing costs are roughly similar between generics and brand name drugs (say ~$1/pill as an example). A large portion of costs for brand name drugs are in the development and qualification. Generics avoid these costs.

For a brand name drugs, manufacturing costs are a relatively low portion of the price and margins are high (example: $20/pill, 95% gross margin). For generics, manufacturing costs are a larger portion of the price and margins are lower (example: $2/pill, 50% gross margin).

For generics, because a substantial portion of the price is driven by manufactured costs, margins can be increased substantially by a reduction of the manufactured cost (example: cost $1->0.50, price: $2, margin ->75%, a 50% increase in profitability!). For the brand name drug, the same reduction (example: cost $1->0.50, price: $20, margin ->97%) yields less increase in margin. As a result, there is less incentive for the brand name drug to push for the manufacturing cost reduction (whether or not quality is affected.) And if there is a risk of reduced quality, then the brand name has much more to lose, both in terms of profitability and in the value of it's brand name.