Research and Development
The research and development (R & D) of a drug and its actual production are heavily
regulated by the U. S. Food and Drug Administration (FDA) and similar agencies throughout the world. The industry spends more than half of its multibillion-dollar profits for R & D activities; safety and efficacy tests account for a majority of these expenditures. Almost all of the money for R & D comes from the
pharmaceutical companies themselves. Government funding of research for pharmaceuticals historically has been about 1 percent of the total pharmaceutical industry R & D expenditure, but federal funds have increased for cancer and AIDS drug research. A federal law passed in 1983 also provides incentives for companies to develop so-called "orphan" drugsÑdrugs that are otherwise commercially unprofitable to develop because they are used to treat diseases that afflict relatively few people.
Each new product can cost up to $250 to $300 million for R & D; this includes the cost of developing drugs that prove unsuccessful during testing stages. Only one in several thousand compounds tested actually results in a product that is approved for
clinical trials. Before a new drug goes on the market, companies must obtain an approved New Drug Application (NDA) from the FDA. This approval follows an average of eight to ten years of chemical, analytical, pharmaceutical, toxicological, pharmacological, and clinical testing. Each of these areas is closely scrutinized by the FDA, especially the clinical trials, where testing is done in three phases, according to specific protocols. (A protocol is the detailed set of instructions used by physicians that define the criteria for patient selection, drug handling and administration, treatment evaluation, and documentation.) Phase I involves demonstration of drug safety with increasing single doses administered to healthy human volunteers or hospitalized patients, depending on the intended therapeutic use. Phase II involves demonstration of efficacy in a limited number of patients. Phase III represents an expansion of Phase II, with both safety and efficacy demonstrated in more patients and at a number of test sites around the country. Each new trial involving new patients, a new test site, change in dose level or administration, or a new protocol, must be approved by the FDA.
Prior to the start of clinical trials, the developer of the drug usually files a patent application. The patent may cover chemical synthesis, pharmaceutical formulation, and medical use. Patents are approved for 17 years, allowing for a certain period of market exclusivity following FDA approval. This exclusivity period provides an opportunity for the firm that developed the drug to use pricing to recover the cost of R & D of this drug as well as the many others that led to this discovery.
Following success in all three phases, all data from clinical trials and from the development effort associated with the manufacture of the drug substance and the drug product are gathered to form the NDA, which is then submitted to the FDA for approval. Only about one in five that are actually tested in humans results in a product that reaches the market. NDAs are very complex, often consisting of enough paperwork to fill a small room. Electronic submission of NDAs is currently being developed by both the pharmaceutical industry and the FDA. About 80 percent of the eight to ten years required for testing and approval of a new drug is taken by preclinical and clinical testing. The remainder is needed for review and negotiations with the FDA for final approval.
Once the patent expires for a particular drug, pharmaceutical companies other than the original patent holder can begin manufacturing similar versions of that drug. These versions, called generic drugs, cost less than the original drug, and are often produced by more than one company. They are known by their pharmaceutical name rather than by a trade or brand name. Generic drug manufacturers must submit abbreviated NDAs to the FDA for approval, with complete chemistry, manufacturing, and control information for their products, but minimal clinical testing reports. The reduced testing requirements are what keep the costs down for generic drug manufacturers. Many states require that prescriptions be filled with less expensive generic drugs when possible.