How much for hope?
(Why do prices for new drugs grow?)

Material published in the TREND weekly, February 12, 2004

Abstract

Debates on the protection of intellectual property have appeared ever since the institute was introduced – not only in the area of research and development of drugs. Prices of new drugs, their effectiveness, and necessity are a frequent attractive topic because they relate to an area sensitive for all of us – health.

Research and development of a new drug currently takes on average 10-12 years and another two years is needed for a registration of a drug and its introduction to the market. These “working years” need to be deducted from the basic period of the patent protection because new drugs are registered for patent protection at the start of the research process. The standard time of patent protection in most states is 20 years. An inventor of a drug therefore in reality has on average 6-8 years for an exclusive use of his invention. In order to secure a due time for an economic return of the investment in case of drugs whose research and development exceeds 12 years, it is possible, rather than automatic, to require a so called additional patent protection of maximum five years (in reality this means the prolongation of the patent protection by a year per every year above the 12 years of research and development stage).

Source: DiMasi et al., J. Health Econ 1991 10:107-42, and Tufts Cent. for the Study of Drug Development, 2003

According to the most recent data published by the Tufts center (Tufts University, US) on the development of expenses needed for research and development of new drugs in May 2003   climbed to USD 897 million. Only two out of 10.000 tested molecules pass the demanding tests and get to patients in the form of drugs and only three out of ten finalized drugs are as successful as to be able to cover and exceed the expenses related to their research and development. The expenses calculated to inflation went up in all stages of research and development but they grow especially acute in the stage of clinical testing. Programs for research and development of drugs expand and there is an increased interest in the development of drugs treating chronic and degenerative diseases. This type of clinical studies requires the monitoring of up to several thousands of patients often for a period of several years. The average annual growth of expenses fro clinical testing is 11.8% and was five times bigger than the growth of expenses in the pre-clinical stage of testing when adjusted to inflation.

The expenses for the production of a generic drug are lower without compare than the expenses needed for the production of an original drug. Generic producer does not have to invest into the research and development, and not even into the safety surveillance. The producers does not have to carry out the demanding pre and post clinical research and is often only looking for alternative way of synthesis of the original substance and can then start with the production.

An important aspect in the introduction of generic drugs after the original’s patent protection time runs out is the expenses of the health care system for drugs. It is true that because of the above mentioned reasons generic drugs can be cheaper but in Slovakia it is not possible to make the generalization that generic drugs are always cheaper than original drugs and the price of the original drug often does not differ considerably from the generic drug. Also, considering the existing system of rates from the health care insurance the original and the generic drug represents and equal expense for a health insurer. Statements that one generic drug can save hundreds of millions of crowns per year are therefore very misleading.

The goal of the proposed changes in the new European legislation is the creation of a balanced legislative environment that would enable prosperity to both types of the industry – the original and the generic, and that would also enable Europe cutting the leeway in the area of research and development of drugs compared to the US. The proposed changes can be an acceptable solution and asset for all parties involved, because in the end the generic drugs save sources that can be used for the development of new drugs and without the original drugs there would be no generics.

MVDr. Soňa Strachotová, MBA
SAFS Executive Director