What’s Behind Rising Drug Prices and What Can Be Done To Control Them?

The headlines of price increases for brand-name drugs goes on and on.

Posted: February 15, 2019

API Manufacturing and Pharmaceutical Manufacturing

A recent CBS News story discussed how big pharma was raising the price of more than 1,000 drugs, with an average increase of six percent; and late last year, Pfizer announced that it would be raising drug prices on key medications in early 2019. The headlines of price increases for brand-name drugs goes on and on.

In fact, rising drug prices has become a key issue on the political agenda, with politicians from both sides of the aisle vowing to curb spiraling costs.  

Learn how we can help keep Drug Development cost down

To be fair to big pharma and patent holders on brand-name drugs, rising drug costs are not always caused by greed. The cost to produce a drug — from discovery through clinical trials to approval can take at least ten years, with the average cost estimated by Tufts at $2.87 billion. Increasing regulatory requirements, along with the high costs for advanced technology and equipment add to the financial burden. Further, for drugs treating wide-spread diseases, the return on investment can be quite large, yet for specialized drugs that treat ailments that affect smaller percentages of the population, the cost to develop the drug can exceed the cost to produce it.

These reasons, however, do little to assuage the patients and insurance firms bearing the burden of increasing costs. So, what exactly is causing major drug price increases, and how can the needs of both pharma and patients be met? The key is in ensuring healthy competition, easing regulatory controls and properly managing drug supply to ease drug shortages.

Giving Consumers Options Almost Always Drives Prices Down 

When one company holds the patent on a life-saving treatment it basically sets the price, simply because it can, and the market has no other option but to bear the burden or forgo treatment. When products go-off patent, however, it’s anyone’s game and generic alternatives enter the fray.  Not only does this provide greater options for patients, but it forces patent holders to curb costs in order to compete.  

Generic medications are nearly always preferred by insurance providers, since they have been proven to be equally as effective and safe as the brand name medication. Inactive ingredients may vary, yet generics meet the same requirements and standards for production as the original product and treat associated condition in the same manner as the brand-name drug.

When generic alternatives becomes anyone’s fair game, the entire population wins. Generics break the monopoly held by any one company. To understand the danger of monopolies, you only have to look at the backlash around the EpiPen, a life-saving allergy treatment. The drug’s maker, Mylan raised its price by up to 400 percent, simply because there was no alternative. Today, there are two generic versions of EpiPen, including one from the original manufacturer, Mylan, so there is competitive pressure to keep the price from skyrocketing. 

Easing Regulatory Controls

The FDA walks a fine line, working to balance the need for strict regulatory controls to make sure drug products are produced for maximum efficacy and safety, while enabling products to hit the market in a timely and cost-effective manner to meet patient needs. 

More recently, the FDA has been working diligently to speed up approvals to address the growing need for affordable drugs and healthy competition. In August 2018 the first generic version of EpiPen and EpiPen Jr (epinephrine) auto-injector, from Teva Pharmaceuticals, was approved.

Last year, the FDA approved 781 abbreviated new drug applications (ANDA) for generic drugs; and growth remains strong this year. To speed drug development, the FDA announced in October 2018 that it was developing technology- and disease-specific regulatory frameworks for innovations “that may not have previously had a clear development pathway, including modernization of the agency’s approach to clinical trial design.” It also issued several guidance documents for newer trial designs and the development of next-generation therapies.

Here at Seqens North America, we’ve experienced faster approvals firsthand. In 2018 we more than doubled the number of new drugs approved than we did in the previous year.

Swifter commercialization of vital drug therapies brings more options to the market, eases drug shortages and brings costs down. A key challenge, however, is ensuring that there are enough qualified clinicians and scientists to keep pace with drug applications.  

Properly Managing Drug Supply to Ease Drug Shortages

Another key factor driving up the costs of drugs is the scarcity of raw materials.  Just as drug manufacturers are able to drive up costs when they control a market, so too can suppliers of raw materials set prices based on supply and demand. This scarcity of enough raw materials has resulted in shortages of critical drugs. 

The Food and Drug Administration defines a drug shortage as a “period of time when the demand or projected demand for a medically necessary drug in the U.S. exceeds its supply.”

But in addition to difficulty procuring raw materials, drug shortages can be caused by manufacturing problems or regulatory issues which force a freeze in production in order to address the problem. Regardless of the reason, drug shortages seriously impact prices. According to the Annals of Internal Medicine, in the 11 months after the shortage of drugs for the treatment of migraines and Parkinson’s Disease, prices increased by up to 20 percent compared with nine percent in the absence of a shortage.

To address a shortage of raw materials, many CDMOs turn to dual sourcing – using two or more suppliers for a raw material, product or service. This can be easier for larger companies who have the resources to properly manage multiple suppliers, and smaller companies are also challenged with the fact that larger companies sourcing much larger volumes are given priority.

Rising drug prices may continue to be a fact of life, but thanks to greater innovation, scientific breakthroughs and greater cooperation from the federal government, generic options will be available to break monopolies and bring affordable drugs to patients who need them the most.

About the Author

Ed Price CEO of PCI Synthesis
Ed is President & CEO of SEQENS North America (formerly PCI Synthesis). He serves as a co-chair of the New England CRO/CMO Council and sits on the Industrial Advisory Board for the Department of Chemical Engineering at UMass, Amherst. Ed is also a long standing member of the American Chemical Society and advises the Bulk Pharmaceutical Task Force of the Society of Chemical Manufacturer’s and Affiliates (SOCMA)...

Do you have questions? Talk to Ed.