Why are New Drugs so Expensive?

New drugs can be prohibitively expensive. Patients may miss out on the best treatment in this age of increasinge economic restraint.

So are pharmaceutical companies ripping off the most vulnerable consumers or does their perceived greed have a logic to it? Should the pharmaceutical industry change practices to make medicines more available to those who really need them? Or is protecting us the real reason that new drugs are so costly?

Understanding the processes involved in drug discovery helps explain why pharma charges so much for some products and not others.

An Arduous Discovery Processi

Getting a new drug product to market takes considerable time, a huge amount of effort and significant investment. It costs an estimated 4 billion euros to bring a brand new medicine to market, so stakes are high.

Pharma expects to have a minimal success rate.  Five thousand candidates may start a drug development cycle; only 10 will be given to humans in clinical trials.  Then only one of them might make it to market – a huge attrition rate.

Developing a truly innovative product is an extremely laborious and expensive process. But these blockbusters – even if rare – can be game changers when they come along as they give a company huge financial.

Role of the Regulatory Authority

The regulatory authorities – the FDA in the US and the EMEA in Europe – govern the drug discovery product cycle. Pharma companies employ big legal teams and regulatory experts to satisfy the requirements of these regulatory agencies. The company must satisfy specific requirements at each step along the discovery process.  The correct documentation must be submitted to the authority and on time. Errors during the submission process will be time consuming and extremely costly for pharma. New technology has greatly reduced the time taken to review drug applications after they have been submitted to the regulatory authority.

A fast track process means some drugs are expedited, with an accelerated time for development review. This occurs for orphan drugs and for some biologics.

The “Me too” Approach

Producing an innovative medicine is the ideal for the pharma industry, but in reality most companies take a pragmatic approach. As a result of this, 70% of drugs are not completely innovative, but are “me too” drugs directed against pre-validated targets.

These medications get quicker to market, which considerably reduces development costs. The downside is that they have to compete with similars in the market. They only improve treatment to a certain extent or improve safety and tolerability compared with another medication. Thus they increase patient compliance. These drugs are hard sells to the payer, unless the improvements are significant or they are cheaper.

Why Drugs Fail?

The development process is always expensive and companies need to recoup investment costs. Big pharma is a high risk and high gain business. Most drug candidates fail; it is cheaper if they fail early. The major reasons why drugs fail early are because they fail to meet specific efficacy and dosing criteria, or are proven unsafe in animals. Late failers usually occur because of side-effect profiles or safety in humans. The FDA or EMEA will not to approve a drug if safety criteria are not met.

Selecting a Drug Candidate

Developing new drugs first involves understanding the disease area and defining a clinical target. Researchers examine the literature and analyse the existing medicines carefully for a potential medical niche they feel they can explore.

Pharma companies aim to develop a drug that is a first in class with a new indication. Also a better return on investment is more likely from a drug for a chronic rather than an acute condition. More profits will be generated from a drug that tackles an unmet clinical need, but this frequently involves higher investment and development costs.

If the condition targeted already has treatment options, the approach is to develop a best in class drug. Research and data will be available on the condition, the competitor drugs and their strengths and weaknesses of these medications and the niche. A common approach is to target a specific aspect of the current medications to improve. These can be related to bioavailability, mechanism of action, or tolerability and safety profile. This approach means patients will already be on a medication. A strong argument is needed to make doctors accept a new medication or for patients to come off a medication they are on and to go a new one. This requires superior evidence over the existing options on the market.

So some major advantage of the new medication needs to be proven, otherwise it will be a much harder sell. If the market is already saturated with choices, then a best in class medication will not make much money. For example, a new cholesterol lowering agent or statin is not likely to have a significant impact on profits unless the efficacy is significant.

Improving the Process

Drug discovery in the traditional sense is wasteful. Some pharma companies reduce costs by focusing on developing specific types of drugs or on specific disease areas. They develop a niche expertise.

For example, one company has targeted diabetes and plans to ‘own the disease’. It is debatable whether this kind of disease monopoly is desirable or not from a consumer perspective, but it reduce expenses of bringing medicines to market. This company are also in the area of diabetes diagnostics and medical devices.

To avoid failures, drug development should be based on solid pharmacology and the drug potency should meet and exceed gold standards. The drug should also ideally be orally administered, have good periodic and linear dosing, be very selective for the clinical target, show good efficacy in animal models with good metabolism and speed of action, with no drug-drug interactions and exhibit robust efficacy.

All studies and evidence collated should meet regulatory requirements and avoid resubmissions. Early stage research requires due diligence. Drugs that fail early in the development process cost much less than if they fail later when up to 500-700m has already been spent.

Proper communication and collaboration within a company will integrate skills, but also identify early any issues with design protocols and regulatory requirements. External communication with regulatory and the understanding of what is required legally will circumvent costly oversights.

If a me too drug is developed, the intellectual property should be structurally unique and not infringe another company’s copyright.

Collaborating with other companies will reduce costs in the drug development and this draws on external expertise and reduces risk burden.

External collaboration to license an intellectual property offers an opportunity for a company to make money with limited investment. If there is a new indication outside the company’s disease portfolio, collaborating with another company with a royalty agreement is a viable way forward. A startup with a new drug may partner with big pharma to complete discovery and market the drug.

Virtual Approaches

Adopting certain approaches to drug discovery is less expensive and time consuming. By simulating binding of new targets virtually expenditure is limited. By identifying drug candidates using molecular data to mine drug space and modelling drug action before going to the lab to test them overall costs are reduced.

We now understand more complex biological systems and this has improved drug discovery. Understanding how medications impact a disease will help develop more effective drugs. But instead of investigating single clinical targets it opens up the opportunity to understand the networks affected by a particular medication and how individuals vary in their response.

Bioinformatics and system biology involve the collation of huge amounts of biological data and its manipulation.  DNA sequence banks, protein banks, and biological sample banks are becoming increasingly open and available.

The use of virtual drug discovery will reduce costs open up new pathways of discovery. Modelling the non-selective binding effects of drugs will identify characteristics that cause side-effects or impair tolerability. A more personalised approach to treatment will evolve and modification of products to increase specificity or reduce unwanted effects .

An open science approach where pharma shares all of its drug data is utopian and unlikely, as barriers to this include economic, IP protection and privacy issues. But there is plenty of data that can be shared

Are Generics Better?

Generic drugs can be made by anyone, so they are much cheaper. They are basically copy drugs with no innovative IP and few if any advantages in terms of action over existing drugs on the market. The big advantage is price.

A generic has a very similar structure and action to a specific prescription drug on the market. The company that produces a generic has no development costs so they can sell it cheaper. Sometimes, however, the generic may have a different formulation. Non-active ingredients may delay the action of the drug or its absorbtion.


Healthcare is expensive. The availability of generic brands offers better value for money but at a price.

Using technology during the development process and virtual modelling help reduce drug development costs.

Streamlining regulatory requirements and shortening review makes it lesscostly and gets medicines to the clinic faster. The price to pay to get new medicines faster and cheaper must not circumvent safety issues, which remain paramount.


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