New Drugs at Generics' Price: Pipe Dream or Possibility?

Seema Singh
Published: 04, Jun 2012

Until Dec 31,2013, I was a Senior Editor at Forbes India and I usually wrote about science and technology on this blog. I believe while we may have settled into consuming the nicely packaged final products of science - technology being a hand maiden of science - we are distancing ourselves from all the effort that goes into it. This blog was an attempt to bring occasional peek into those efforts and ideas. I've been a journalist for 17 years and have written for The Asian Age, The Times of India, Mint, Red Herring, IEEE-Spectrum, Cell, New Scientist and others. I'm now available at You will find my future articles on

As I reported for this story on Piramal Healthcare’s full-throttle effort in developing new molecule drugs, one thing that repeatedly came up for discussion was the cost. How much does it actually cost to produce a new drug? Are pharma companies (read big pharma) in the business for disease management or profit management?

Well, the cost of a new molecule drug, or brand new innovative drugs, may range from a few hundred dollars (as the Piramals propose in the story) to a few billion dollars, depending on who you are seeking the data from. But what is pretty clear now is that the discovery, development and commercialization of new drugs are in for a dramatic shift and the debate on this is getting shriller with each passing month.

Bernard Munos, a former longtime Eli Lilly advisor, who now runs a biomedical consultancy InnoThink in Indiana, US, says lots of marketing support expenses are relabeled as R&D and drive up the spending per new molecule. “I think clinical research in the US/EU has become very dysfunctional. Take for example, AstraZeneca. It has done 72 phase III trials for Seroquel!  FDA only requires two.  It has also done 39 phase IV trials.  Some of that is justified to add claims to the label but not 72.  All big pharmas are guilty of the same sin, although not to such extreme levels.”

More than half of the phase III trials performed by big pharma are for drugs that have already been approved.  In reality, much of that is aimed at generating data to keep sales reps talking.  It is not research, says Munos.

The other thing is the enormous fixed costs incurred by big pharma.  It may cost $50,000 per patient to run a phase III trial, but this is only the variable part.  The fixed costs (infrastructure) can easily be five or 10 times as much.  Research models that eschew those unnecessary costs, and especially networked models, can deliver new molecules for $50m to $200 million, which is a small fraction of the $4b to $12 billion currently spent by big pharma, says Munos, who recently joined Glenmark Pharmaceutical as non-executive director.

Wherever the cost may lie in this range, the distress of patients and payers with this kind of drug pricing, a major component of the $4.5 trillion global healthcare industry, needs a dose of course correction. After all, how much profits can one extract from one blockbuster success? Last week economist and Nobel Prize winner, Joseph Stiglitz wrote about the main problems limiting the availability of medicines. One, he says, is that the “drugs are very costly; or, more accurately, the price charged for them is very high, though the cost of producing them is but a fraction of that amount.”

Second, drug development is geared toward maximising profit, not social benefit, which skews efforts directed at the creation of medicines that are essential to human welfare. “Because the poor have so little money to spend, drug companies, under current arrangements, have little incentive to do research on the diseases that afflict them.”

But if you look at the patient outburst in theUS, where the groups are suing drug companies over issues that, in nutshell, increase healthcare costs, it’s clear that the current system is hopelessly broken.

In the latest edition of Current Science, Suri Venkatachalam (a life sciences entrepreneur) and Gayatri Saberwal (an academic at NEN Wadhwani Centre for Excellence in Entrepreneurship education at IBAB inBangalore) propose a new, albeit hypothetical, organization calling it Centre for Affordable Medicine. They propose setting up of a non-profit organization that retains the entrepreneurial nature of a small biotech company but whose output is as affordable as generic drugs. “We propose that such a programme be taken up in India, where drug discovery can perhaps be done at less than 10% of the alleged cost in a developed country,” write the authors.

At a time when we know that about 70 of the drugs approved in the US are no better than what is already available in the market and that only 40 percent of the drugs in development are abandoned for reasons of safety or efficacy (60% are killed for financial or other reasons), a new paradigm is needed, however improbable it may seem at the outset.

As I wrote earlier about India’s nascent open source effort in this space, Munos argues that increasingly open source will prove to be a viable alternative for inventive drugs. Take for example, MMV (Medicines for Malaria Venture), a non-profit public-private partnership headquartered in Geneva. It employs 42 people, has 130 pharma and biotech partners in 43 countries, is running 55 clinical trials in 24 countries, spends $55 million annually and has spent $311 million over 10 years 88 percent of which is towards R&D. It has one drug approved and two under regulatory review.

The cost of new drug = $ 85 million.

Can the math be applied to other diseases or is low-cost inventive drug a pipe dream?

  • Om Prakash Sharma

    The cost of the medicines are so high that it is going high and beyond the reach if riches , even for the better paid jobs. I went around and found that the reason is something like this. The jobs is done but the cost is very high, as for the space craft the seal on the tank cost is most high even the one bolt cost is one million dollar. The price is evaluated on this scale- total cost is 100 dollar, the hammer cost is 5 dollar but where to use the hammer is 95 dollar. The medicine in the pill is 5 dollar but what is there is 95 dollar costlier.

    on Aug 18, 2012
  • Yoaly

    My experience wiithn the industry tells me that pushing the envelope, especially in the sales and marketing area, has been and will continue to be standard practice. Since there is money at stake, some individuals will take a risk and knowingly compromise laws, ethics and/or social responsibility. Paying a generics firm to keep a drug off the market is one good example of this. It may not be illegal, as your post has pointed out, but something is still seriously wrong with it.Mind you, the generics firm is just as guilty here as the pharmacutical company. I'm sure, however, that while they go into these deals, publicly they tout how socially responsible they are by providing cheaper alternatives to the public. So, both industries are at risk here.And don't forget the effect that this all has on the employees of these firms. It's just like Enron. When questionable practices eventually catch up with these companies, the employees feel betrayed. And rightfully so. Most of them are doing honest work with the notion that the company they work for has integrity and brings benefit to mankind.Senior management has to recognize the need for honest conduct and not plead ignorance when questionable practices come to light. Prevention is the answer. Perhaps the new focus on the role of the Chief Compliance Officer will move things in the righ direction.

    on Aug 15, 2012
  • Akshat Rathi

    Medicines for Malaria Venture is taking advantage of the unique market it is in. Whatever little malaria research has been done, has mostly been done by academic institutions rather than those in big pharma. MMV has is exploring an area where not many have dug in the past. Of course $85 million/drug is still commendable, but one must not ignore the unfair start it has.

    on Jun 5, 2012
    • Seema Singh

      Akshat@ MMV was created in the first place because no one was pursuing the leads in malaria, so you can't say it has an "unfair' start. How can that be unfair? Sure, nobody is expecting such spectacular numbers from other players in other therapeutics areas, but it surely is a good example. In fact one should applaud that it has shown a way and the fact that it is collaborating with dozens of companies, big and small, shows that the industry is interested as well. And that's the model that will emerge -- more PP collaboration, both sides have to walk some distance. You have enough recent examples of Merck, Pfizer, Lilly and others going to academics for collaboration, and in a big way. Will that help lower cost? One hopes so!

      on Jun 6, 2012
  • RJ

    Glad to see that you are writing about big pharma and their profit motives. One problem is drugs, but the other is the lack of doctors - we rank pretty low in that department With the current model of paying large fees for getting a medical degree, new graduates will inevitably join the high-paying for-profit corporate medical industry in an attempt to pay off their loans. I see an ever lower number of doctors serving in the rural areas. China had managed this problem quite ingeniously during the Cultural Revolution years by having a very large team of paramedics. Healthcare for the rural poor seems to be off our agenda, as far as I can see.

    on Jun 4, 2012
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