The pharmaceutical industry is heavily research-based. It costs around $200 million for a company to produce a new drug and get it approved by the US Federal Drugs Administration. That is the major barrier. After that approval in other countries usually follows, though it is not routine, nor cheap. In Australia, the Federal Government’s Therapeutic Goods Administration rigorously evaluates new products before approval.
Australia is about 2 per cent of the world pharmaceutical market.
The marketability and financial return for the new drug will depend on many factors, the most significant being the difference between the new treatment and the old in effectiveness, side-effects, ease of administration, price and acceptance by patients, pharmacists and doctors.
The high price of producing a new drug is mainly in the cost of failures. It is an uncertain business. Some companies can get several quick hits and other might languish with failures. So there are often there are corporate shake-ups, mergers and break-ups.
In return for all their research, the drug companies get a patent when they invent or discover a new drug. The patent lasts 20 years, during which time no-one else can produce the drug and the patent owner has a monopoly. After which time, the patent becomes public property and it is open to anyone else to produce that drug, which is called a generic.
However, the original patent owner will have marketed its drug (for example, Diazepam) under a brand name, say, Valium. That brand name is owned by the original patent owner as a trade mark which can be re-registered indefinitely. No-one else can use that name. So the generic producer of Diazepam has to use another name, say, Antenex.
Even if the generic is sold at a cheaper price, the earlier brand name is well-established and has a competitive edge. Consumers do not always rely on price alone. (Individual generic drugs, incidentally, are given brand names and the manufacturer stamps its name on it proudly, unlike the supermarket “”Home Brand” and “”No Brand” generics, where the same labelling covers a host of products.)
Without the patent and trade-mark protection, the world would not have much of a pharmaceutical industry and we would be sicker for it.
But the search for new compounds is getting wider and the results are getting more complex. It is taking longer to go from initial promising discovery, at which time the patent must be registered to get commercial protection, to having a pill on the pharmacy shelf. Twelve years of more can be chewed up in development, clinical trials and the bureaucratic approval process. After thalidomide, governments have to be careful.
It means much of the patent has expired before it gives a return. Moreover, some patents fully expire after early research comes to a dead end, only to be more successfully revisited by other companies later.
The patent time for drugs was extended recently from 16 to 20 years. Further an Australian Government incentive scheme has increased Australian manufacturing. Essential the Government has agree to take into account money spent on increased Australian manufacturing, research and development when setting prices.
Both the dollars and the change to a governmental-supportive environment have had an effect. Pharmaceutical manufacture is now one of the fastest growing industries in Australia. In 1987 exports were $165 million and R and D spending $7 million. Exports are now about $600 and R & D about $70 million. Imports are running at $1.1 billion, leaving a $400 million deficit. By 2000, however, Australia should be exporting more than importing, with exports running at $2 billion. However, a lot of the effort has not been into new active ingredients, but packaging and producing from imported active ingredients.
Another point about the industry is that it is not solely geared to the Pharmaceutical Benefits Scheme. It is hard to estimate how many scripts are written where the drugs and dispensing fee cost less than $16, so the patient is paying all. Further, there is a big market in non-prescription drugs.