We’re excited to launch “3 Things About Pricing Of New Drugs”, the third video in our ‘3 Things About’ series designed to simplify complex healthcare topics. In this video, Carin Uyl-de Groot explores the factors that influence drug pricing — a crucial topic in healthcare affordability. From development costs to monopolies, understanding these factors is key to ensuring fair pricing and access to medicines.
Transcript of the video
3 THINGS ABOUT PRICING OF NEW DRUGS
Many people suppose that we cannot afford new drugs and that the high cost of these drugs threatens healthcare budgets. It also limits funding available for other areas in which public investment is needed. A main question is: Why are the costs of new drugs that high?
I would like to explain 3 things you might not know about pricing of new drugs.
High cost of development
Drug development is a long and expensive undertaking. It takes about 10–12 years for a drug to move from the laboratory to testing with patients in clinical trials and getting final registration. It is estimated that it costs approximately $3 billion to develop a new drug. It is important to realize that many drugs do not reach the market. Only 1 to 2 out of 10 drugs tested come to the market. In other words, lots of investments fail. In addition, governments also fund projects on drug development, and a lot of public money is spent on research and development. This is most often in the earlier trajectories of an innovation and includes failures as well.
Existence of monopoly
Another reason for the high costs of new drugs is the existence of a monopoly. A monopoly means that there is no competition; there are no other companies with a comparable drug. The result is that there is no other substitute with the same active ingredient available for the patient. The reason for this is that there is a patent period. Patents are introduced to protect a company’s idea from use by another pharmaceutical company for free. Ideally, monopolies will be temporary because competition should emerge as the patent period expires. However, this is not always the case.
Cost price versus fair price
When pricing their drugs, pharmaceutical companies consider a drug’s uniqueness, the clinical value of the drug, research and development costs, and patient population. A drug’s uniqueness is seen in the added value it brings compared to existing therapies. For example, the new cell and gene therapies. Unlike conventional therapies like medication and surgery, they alter a specific part of the genetic makeup, targeting the underlying causes of the disease with higher accuracy. The assessment of the clinical value of a drug differs per disease. In cancer, an improvement in survival, preferably without disease progression and side effects, is considered most relevant. With regard to patient population, in general, the smaller the patient group, the higher the costs.
There is a lot of discussion on whether the prices of drugs could be lower, in other words, could be fairer. A fair price will seek a balance between what is best for the company and what is best for society as a whole. We would like to see new drugs on the market to improve health outcomes for many patients. Therefore, companies need money for the development of these drugs. On the other hand, when prices are too high, these patients do not have access to these drugs if we cannot afford them. Thus, the new drugs are not used as intended. Finding the right balance will be key.
And don’t miss the making-of video
The videos were filmed on November 28, 2024, at the Gegevens Erasmus Studio of Erasmus University Rotterdam.
We invite you to watch, share, and join the conversation about how we can work together to make healthcare more equitable and effective.