Cautious drug approval

Wednesday, November 26th, 2003

None of this is news to me, but I think Steven Den Beste’s Cautious drug approval piece gives a decent summary of why prescription drugs seem so expensive:

After the Thalidomide catastrophe, the FDA became notoriously cautious about approving new drugs. Thalidomide wasn’t approved in the US (it was still in process at the time) and Thalidomide caused no deformed babies in the US. This reinforced the bureaucratic culture of caution at the FDA.

But the FDA is also inherently cautious, simply because of the situation they’re in. If they approve a drug which ends up being dangerous, they will get roasted for it. But if they refuse to approve a safe drug, or if the approval process is extremely slow, they don’t get roasted for all the people who suffer and die who could have been helped if the drug had been approved sooner. It’s inherent in their situation that they will err on the side of caution because it’s much riskier for the FDA bureaucrats to be too eager to approve a drug than to be too cautious about doing so. Whether that’s good or bad for the rest of us is less clear.

The approval process is so long and so involved and requires such a mountain of data to be collected, that it is massively expensive. The total cost for development and approval can exceed $100 million per drug. And a lot of money can be consumed during the testing and approval for drugs which are ultimately rejected.

Pharmaceutical companies have to recoup that cost, and the money can only come from sales of drugs after approval. That’s why drugs which are still under patent are so expensive compared to generics after patent expiration. Generics are priced based on a markup over manufacturing and distribution costs, whereas drugs under patent are priced to amortize the cost of development and regulatory approval, as well as to amortize the money spent on other drugs which were rejected.

The amortization premium paid by Americans is all the greater because most other nations in the world “free ride” on American drug development.

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