The Profit Margin of Pharmaceutical Companies
The estimate of the cost involved in developing a new drug has risen from one billion United States dollars to around 1.7 billion dollars, where it currently rests. These costs arise primarily from the extensive testing required for licensing prior to marketing a drug. Clinical trials on human beings and safety monitoring of the product take years to assemble the information and data required to satisfy the FDA (Food and Drug Administration) and to become approved by this agency.
These costs far outweigh those of preclinical development and only a small percentage of drugs discovered and tested at this stage are taken though to clinical trial. Of this percentage, only a small percent are actually ever approved and allowed to be marketed.
Another hurdle for pharmaceutical companies that severely limits their profits is the patent law. Since the 1970's stringent patent laws have been in place. These laws determined that pharmaceutical companies could only own the patent for a drug they have developed for twenty years. Many drugs take seven to ten years to develop, so this law cuts profit taking by pharmaceutical companies nearly in half.
After the patent expires, it is eligible to be produced generically by other companies and some may be sold over the counter at reduced price. All in all, generic drugs represent a vast savings to the consumer. They are produced more cost effectively and this allows the drug to be sold at a lower price. Generic drug production is now centered in India where labor costs allow drugs to be produced at even less cost, and this country has become the leading manufacturer of non patented drugs.
This blow to pharmaceutical companies forced many to merge so that there were larger financial resources to draw upon to bear the cost for research and development. Another strategy used by pharmaceutical companies to protect their patents was to develop expanded uses for their drugs. In this way, once the drug was proven to be safe and efficacious in the new treatment modality, a new patent could be issued for this application, which would have the standard twenty year protection. For example, a drug that is marketed for cholesterol level control may be found to have stroke preventive properties. If this drug can be re-evaluated in clinical trials before the existing patent expires, the pharmaceutical company will retain the sole right to produce and sell the drug for an additional twenty years.
by Sally.Anderson 19 years ago