In statistical hypothesis testing, a result has statistical significance when a result at least as "extreme" would be very infrequent if the null hypothesis were true. More precisely, a study's defined significance level, denoted by , is the probability of the study rejecting the null hypothesis, given that the null hypothesis is true; and the p-value of a result, , is the probability of obtaining a result at least as extreme, given that the null hypothesis is true. The result is statistically significant, by the standards of the study, when . The significance level for a study is chosen before data collection, and is typically set to 5% or much lower—depending on the field of study.
In any experiment or observation that involves drawing a sample from a population, there is always the possibility that an observed effect would have occurred due to sampling error alone. But if the p-value
of an observed effect is less than (or equal to) the significance
level, an investigator may conclude that the effect reflects the
characteristics of the whole population, thereby rejecting the null hypothesis.
This technique for testing the statistical significance of results was developed in the early 20th century. The term significance does not imply importance here, and the term statistical significance is not the same as research significance, theoretical significance, or practical significance. For example, the term clinical significance refers to the practical importance of a treatment effect.
In 1925, Ronald Fisher advanced the idea of statistical hypothesis testing, which he called "tests of significance", in his publication Statistical Methods for Research Workers. Fisher suggested a probability of one in twenty (0.05) as a convenient cutoff level to reject the null hypothesis. In a 1933 paper, Jerzy Neyman and Egon Pearson called this cutoff the significance level, which they named . They recommended that be set ahead of time, prior to any data collection.
Despite his initial suggestion of 0.05 as a significance level,
Fisher did not intend this cutoff value to be fixed. In his 1956
publication Statistical Methods and Scientific Inference, he recommended that significance levels be set according to specific circumstances.
Related concepts
The significance level is the threshold for
below which the null hypothesis is rejected even though by assumption
it were true, and something else is going on. This means that is also the probability of mistakenly rejecting the null hypothesis, if the null hypothesis is true. This is also called false positive and type I error.
Sometimes researchers talk about the confidence levelγ = (1 − α) instead. This is the probability of not rejecting the null hypothesis given that it is true.Confidence levels and confidence intervals were introduced by Neyman in 1937.
In a two-tailed test, the rejection region for a significance level of α = 0.05 is partitioned to both ends of the sampling distribution and makes up 5% of the area under the curve (white areas).
Statistical significance plays a pivotal role in statistical hypothesis testing. It is used to determine whether the null hypothesis should be rejected or retained. The null hypothesis is the hypothesis that no effect exists in the phenomenon being studied. For the null hypothesis to be rejected, an observed result has to be statistically significant, i.e. the observed p-value is less than the pre-specified significance level , or sometimes, Emily Campbell's .
To determine whether a result is statistically significant, a researcher calculates a p-value,
which is the probability of observing an effect of the same magnitude
or more extreme given that the null hypothesis is true. The null hypothesis is rejected if the p-value is less than (or equal to) a predetermined level, . is also called the significance level, and is the probability of rejecting the null hypothesis given that it is true (a type I error). It is usually set at or below 5%.
For example, when is set to 5%, the conditional probability of a type I error, given that the null hypothesis is true, is 5%, and a statistically significant result is one where the observed p-value is less than (or equal to) 5%. When drawing data from a sample, this means that the rejection region comprises 5% of the sampling distribution. These 5% can be allocated to one side of the sampling distribution, as in a one-tailed test, or partitioned to both sides of the distribution, as in a two-tailed test, with each tail (or rejection region) containing 2.5% of the distribution.
The use of a one-tailed test is dependent on whether the research question or alternative hypothesis specifies a direction such as whether a group of objects is heavier or the performance of students on an assessment is better. A two-tailed test may still be used but it will be less powerful
than a one-tailed test, because the rejection region for a one-tailed
test is concentrated on one end of the null distribution and is twice
the size (5% vs. 2.5%) of each rejection region for a two-tailed test.
As a result, the null hypothesis can be rejected with a less extreme
result if a one-tailed test was used.
The one-tailed test is only more powerful than a two-tailed test if the
specified direction of the alternative hypothesis is correct. If it is
wrong, however, then the one-tailed test has no power.
In specific fields such as particle physics and manufacturing, statistical significance is often expressed in multiples of the standard deviation or sigma (σ) of a normal distribution, with significance thresholds set at a much stricter level (for example 5σ). For instance, the certainty of the Higgs boson particle's existence was based on the 5σ criterion, which corresponds to a p-value of about 1 in 3.5 million.
In other fields of scientific research such as genome-wide association studies, significance levels as low as 5×10−8 are not uncommon—as the number of tests performed is extremely large.
Limitations
Researchers
focusing solely on whether their results are statistically significant
might report findings that are not substantive and not replicable.
There is also a difference between statistical significance and
practical significance. A study that is found to be statistically
significant may not necessarily be practically significant.
Effect size is a measure of a study's practical significance.
A statistically significant result may have a weak effect. To gauge the
research significance of their result, researchers are encouraged to
always report an effect size along with p-values.
An effect size measure quantifies the strength of an effect, such as
the distance between two means in units of standard deviation (cf. Cohen's d), the correlation coefficient between two variables or its square, and other measures.
A statistically significant result may not be easy to reproduce.
In particular, some statistically significant results will in fact be
false positives. Each failed attempt to reproduce a result increases the
likelihood that the result was a false positive.
Starting in the 2010s, some journals began questioning whether significance testing, and particularly using a threshold of α=5%, was being relied on too heavily as the primary measure of validity of a hypothesis.
Some journals encouraged authors to do more detailed analysis than just
a statistical significance test. In social psychology, the journal Basic and Applied Social Psychology banned the use of significance testing altogether from papers it published, requiring authors to use other measures to evaluate hypotheses and impact.
Other editors, commenting on this ban have noted: "Banning the reporting of p-values,
as Basic and Applied Social Psychology recently did, is not going to
solve the problem because it is merely treating a symptom of the
problem. There is nothing wrong with hypothesis testing and p-values per se as long as authors, reviewers, and action editors use them correctly." Some statisticians prefer to use alternative measures of evidence, such as likelihood ratios or Bayes factors. Using Bayesian statistics can avoid confidence levels, but also requires making additional assumptions, and may not necessarily improve practice regarding statistical testing.
The widespread abuse of statistical significance represents an important topic of research in metascience.
Redefining significance
In 2016, the American Statistical Association (ASA) published a statement on p-values, saying that "the widespread use of 'statistical significance' (generally interpreted as 'p ≤
0.05') as a license for making a claim of a scientific finding (or
implied truth) leads to considerable distortion of the scientific
process". In 2017, a group of 72 authors proposed to enhance reproducibility by changing the p-value threshold for statistical significance from 0.05 to 0.005. Other researchers responded that imposing a more stringent significance threshold would aggravate problems such as data dredging; alternative propositions are thus to select and justify flexible p-value thresholds before collecting data, or to interpret p-values as continuous indices, thereby discarding thresholds and statistical significance.
Additionally, the change to 0.005 would increase the likelihood of
false negatives, whereby the effect being studied is real, but the test
fails to show it.
In 2019, over 800 statisticians and scientists signed a message calling
for the abandonment of the term "statistical significance" in science, and the ASA published a further official statement declaring (page 2):
We
conclude, based on our review of the articles in this special issue and
the broader literature, that it is time to stop using the term
"statistically significant" entirely. Nor should variants such as
"significantly different," "," and "nonsignificant" survive, whether expressed in words, by asterisks in a table, or in some other way.
Medication costs, also known as drug costs are a common health care cost for many people and health care systems. Prescription costs
are the costs to the end consumer. Medication costs are influenced by
multiple factors such as patents, stakeholder influence, and marketing
expenses. A number of countries including Canada, parts of Europe, and
Brazil use external reference pricing as a means to compare drug prices and to determine a base price for a particular medication. Other countries use pharmacoeconomics, which looks at the cost/benefit of a product in terms of quality of life,
alternative treatments (drug and non-drug), and cost reduction or
avoidance in other parts of the health care system (for example, a drug
may reduce the need for a surgical intervention, thereby saving money).
Structures like the UK's National Institute for Health and Clinical Excellence and to a lesser extent Canada's Common Drug Review (a division of the Canadian Agency for Drugs and Technologies in Health) evaluate products in this way.
A November 2020 study found that more than 1.1 million senior citizens in the U.S. Medicare
program are expected to die prematurely over the next decade because
they will be unable to afford their prescription medications, requiring
an additional $17.7 billion to be spent annually on avoidable medical
costs due to health complications.
Definition
Medication costs can be the selling price from the manufacturer, that price together with shipping, the wholesale price, the retail price, and the dispensed price.
The dispensed price or prescription cost is defined as a cost
which the patient has to pay to get medicines or treatments which are
written as directions on prescription by a prescribers.
The cost is generally influenced by a financial relationship between
pharmaceutical manufacturers, wholesale distributors and pharmacies.
In addition to the financial relationship, each nation has different
systems to control the cost of prescriptions. In the United States, a
pharmacy benefit manager, a third-party organization, such as private
insurances or government-run health insurances will implement cost
containment programs, such as establishing a formulary, to contain the
cost.
In the United Kingdom, the government negotiates an overall cap on
drugs bill growth with the pharmaceutical industry. In addition a
government agency, the National Institute of Health and Care Excellence
(NICE) assesses cost effectiveness of individual prescription drugs
pricing.
The National Health Service also may negotiate direct with individual
pharmaceutical companies for certain specialised medicines, as well as
running competitive procurements for generic drugs and for patented
medicines where there is more than one drug available for a condition. Prescription costs are a regular health care cost for the sick and may mean economic hardship for the underprivileged.
With healthcare insurance, the patient in the U.S. pays a co-pay (the
amount the patient must pay for each drug or medical visit), a
deductible (the amount the patient has to pay before the insurance
starts sharing the cost) and co-insurance (the amount the patient has to
pay after deductible) for prescription costs. After reaching the out of
pocket maximum, the insurance company will pay 100% of the prescription
cost. The amount the patient has to pay depends on the healthcare
insurance plan the patient has.
As of 2017, prescription costs range from just more than 15% in
high income countries to 25% in lower-middle income countries and low
income countries.
Pricing any pharmaceutical drug for sale to the general public is
daunting. Per Forbes, setting a high ceiling price for a new drug could
be problematic as physicians could shy away from prescribing the drug,
because the cost could be too great for the benefit. Setting too low of a price could imply inferiority, that the drug is too "weak" for the market.
There are many different pricing strategies and factors that go into
the research and evaluation of a future drug's price with whole
departments within US pharmaceutical companies like Pfizer devoted to cost analysis.
This chart shows discrepancies in drug pricing in different countries.
Marketing expenses
A study has placed the amount spent on drug marketing at 2-19 times that on drug research.
Research and development
Much research, needed to create drugs is done by the public sector. In addition, pharmaceutical companies also do much research prior to
producing medications. The table shows research and development
statistics for pharmaceutical companies as of 2013 per Astra Zeneca.
Pharmaceutical company
Number of drugs approved
Average R&D spending per drug (in $ Millions)
Total R&D spending from 1997 to 2011 (in $ Millions)
Severin Schwan,
the CEO of the Swiss company Roche, reported in 2012 that Roche's
research and development costs in 2014 amounted to $8.4 billion, a
quarter of the entire National Institutes of Health budget.
Given the profit-driven nature of pharmaceutical companies and their
research and development expenses, companies use their research and
development expenses as a starting point to determine appropriate yet
profitable prices.
Pharmaceutical companies spend a large amount on research and
development before a drug is released to the market and costs can be
further divided into three major fields: the discovery into the drug's
specific medical field, clinical trials, and failed drugs.
Discovery
The
process of drug discovery can involve scientists determining the germs,
viruses, and bacteria that cause a specific disease or illness.
The time frame can range from 3–20 years and costs can range between
several million to tens of millions of dollars. Research teams attempt
to break down disease components to find abnormal events/processes
taking place in the body. Only then do scientists work on developing chemical compounds to treat these abnormalities with the aid of computer models.
After "discovery" and a creation of a chemical compound,
pharmaceutical companies move forward with the Investigational New Drug
(IND) Application from the FDA.
After the investigation into the drug and given approval,
pharmaceutical companies can move into pre-clinical trials and clinical
trials.
Trials
Drug development and pre-clinical trials focus on non-human subjects and work on animals such as rats.
The Food and Drug Administration
requires at least 3 phases of clinical trials that assess the side
effects and the effectiveness of the drug. An analysis of trial costs of
approved drugs by the FDA from 2015 to 2016 found that out of 138
clinical trials, 59 new therapeutic agents were approved by the FDA.
These trials have a median estimated cost of $19 million US dollars.
Phase 1 lasts several months and aims to assess the safety and
dosage of the drug. The purpose is to determine how the drug affects the
body.
Phase 2 lasts several months to two years and aims to assess the efficacy and side effect profile of the drug.
Phase 3 lasts 1 to 4 years and aims to continue assessing and
monitoring the efficacy and side effects of the drug. Phase 3 aims to
determine the risks and benefits of a drug to its intended patient
population.
Phase 4 trials occur after the drug is approved by the FDA and aims to continue monitoring safety and efficacy of the drug.
Of these phases, the phase 3 is the most costly process of drug development. A single phase 3 trial can cost upwards of $100 million. It accounts for about 90 percent of the cost to pharmaceutical companies to develop a medication.
Failed drugs
The
processes of "discovery" and clinical trials amounts to approximately
12 years from research lab to the patient, in which about 10% of all
drugs that start pre-clinical trials ever make it to actual human
testing.
Each pharmaceutical company (who have hundreds of drugs moving in and
out of these phases) will never recuperate the costs of "failed drugs".
Thus, profits made from one drug need to cover the costs of previous
"failed drugs". The cost of failure in R&D constitutes about 60% of
all development costs. It emphasizes the importance of success rates as a
key driver of R&D productivity. The average costs for studies are
estimated at $30 million, $70 million, and $310 million for Phase I, II,
and III, respectively.
Relationship
Research and development investments vs log-adjusted treatment costs at launch based on list prices and net prices
Overall, research and development expenses relating to a
pharmaceutical drug amount to the billions. For example, it was reported
that AstraZeneca spent upwards on average of $11 billion per drug for research and developmental purposes. The average of $11 billion only comprises the "discovery" costs, pre-clinical and clinical trial costs, and other expenses. With the addition of "failed drug" costs, the $11 billion easily amounts to over $20 billion in expenses. Therefore, an appropriate figure like $60 billion would be approximate sales figure that a pharmaceutical company like AstraZeneca would aim to generate to cover these costs and make a profit at the same time.
Total research and development costs provide pharmaceutical
companies a ballpark estimation of total expenses. This is important in
setting projected profit goals for a particular drug and thus, is one of
the most necessary steps pharmaceutical companies take in pricing a
particular drug.
A 2022 study invalidated the common argumentas is
for high medication costs that research and development investments are
reflected in and necessitate the treatment costs, finding no
correlation for investments in drugs (for cases where transparency was sufficient) and their costs.
Stakeholders
Patients
and doctors can also have some input in pricing, though indirectly.
Customers in the United States have been protesting the high prices for
recent "miracle" drugs like Daraprim and Harvoni, both of which attempt to cure or treat major diseases (HIV/AIDS and hepatitis C).
Public outcry has worked in many cases to control and even decide the
pricing for some drugs. For example, there was severe backlash over
Daraprim, a drug that treats toxoplasmosis. Turing Pharmaceuticals under the leadership of Martin Shkreli raised the price of the drug 5,500% from $13.50 to $750 per pill. After denouncement from 2016 presidential candidates Hillary Clinton and Bernie Sanders, Martin Shkreli said he would reduce the price but later decided not to.
With the recent trend of price gouging, legislators have
introduced reform to curb these hikes, effectively controlling the
pricing of drugs in the United States. Hillary Clinton announced a
proposal to help patients with chronic and severe health conditions by
placing a nationwide monthly cap of $250 on prescription out-of-pocket
drugs.
Research for a drug that is curing something no one has ever
cured before will cost much more than research for the medicine of a
very common disease that has known treatments. Also, there would be more patients for a more common ailment so that prices would be lower. Soliris only treats two extremely rare diseases, so the number of consumers is low, making it an orphan drug. Soliris still makes money because of its high price of over $400,000 per year per patient.
The benefit of this drug is immense because it cures very rare diseases
that would cost much more money to treat otherwise, which saves
insurance companies and health agencies millions of dollars. Hence,
insurance companies and health agencies are willing to pay these prices.
Public policy
Policy
makers in some countries have placed controls on the amount
pharmaceutical companies can raise the price of drugs. In 2017,
Democratic party leaders proposed the creation of a new federal agency
to investigate and perhaps fine drug manufacturers who make unjustified
price increases. Pharmaceutical companies would be required to submit a
justification for a drug with a “significant price increase” within at
least 30 days of implementation. Under the terms of the proposal,
Mylan's well-publicized price increase for its EpiPen product would fall
below the criteria for a significant price increase, while the 5000%
overnight increase of Turing Pharmaceuticals Daraprim (pyrimethamine)
would be subject to regulatory action.
Patents and monopoly rights
One
of the most important factors that determine the cost of a drug is the
availability of competing drugs and treatments. Having two or more
manufacturers producing drugs for the same disease tends to reduce
costs.
Patent laws give pharmaceutical companies the exclusive right to market a drug for a period of time, allowing them to extract a high monopoly price. For example, U.S. patent law grants a monopoly for 20 years after filing. After that period, the same product from different manufacturers - known as generic drugs
- can be sold, usually resulting in a substantial price reduction and
possible shift in market share. Two patents that are commonly used are process patents and drug product patents.
Process patents only provide developers intellectual claim to the
methods in which the product was manufactured, so a competitor can make
the same drug by a different method without violating the patent.
In some cases, a new treatment is more effective than an older
treatment, or a given drug may work better than competitors for only
some patients. The availability of an imperfect substitution erodes
prices to a lesser degree than would a perfect substitute.
Some countries grant additional protections from competition for a limited period, such as test data exclusivity or supplementary protection certificates. Additional incentives are available in some jurisdictions for manufacturers of orphan drugs
for rare diseases, including extended monopoly protection, tax credits,
waived fees, and relaxed approval processes due to the small number of
affected patients.
Transparency
The process of creating drugs to testing them to selling them is a long process. Aside from the costs for research and trials, many consumers are unaware of the process of the drug supply chain.
There are many middlemen and companies that buy and sell the drugs.
This includes "drug manufacturers, drug wholesalers, pharmacies, and
payers." Big Pharma's
influence in the policies and regulations regarding drug patents and
prescription costs, protects pharmaceutical companies from having to be
transparent about where the money goes and who those high prices
benefit, including Pharmacy Benefit Managers. Transparency between drug manufacturers and sellers increases
accountability between producers and consumers and allows for patients
to know more about what they are paying for. Prescription Drug Price
Locators allow for patients to learn of more cost-effective sellers and
find discounts that will benefit them.
In an effort by the U.S. Department of Health and Human Services (HHS) to regulate drug price transparency in television advertising in 2019, the HHS saw a resistance to change against legislation.
Although what the HHS sought to change was a step in the right
direction for drug price transparency, Federal Judge Amit P. Mehta ruled
in favor of the pharmaceutical industry. The ruling was based on the
inability to give the HHS such power to enact such legislations.
Policymakers have a lot to take into account when regarding the issue
of transparency, as there are many middlemen involved in the selling and
buying of prescription drugs.
Effects on consumers
When the price of medicine goes up the quality of life of consumers who need the medicine decreases.
Consumers who have increased costs for medicine are more likely to
change their lifestyle to spend less money on groceries, entertainment,
and routine family needs. They are more likely to go into debt or postpone paying their existing debts. High drug prices can prevent people from saving for retirement. It is not uncommon for typical people to have challenges paying medical bills. Some people fail to get the medical care they need due to lack of money to pay for it. In low and middle income countries up to 90% of people pay for medications out of pocket. A November 2020 study by the West Health Policy Center stated that more than 1.1 million senior citizens in the U.S. Medicare
program are expected to die prematurely over the next decade because
they will be unable to afford their prescription medications, requiring
an additional $17.7 billion to be spent annually on avoidable medical
costs due to health complications.
The effects of high prescription costs on consumers also affects
their long-term health and overall life expectancy. When properly used, a
medication can benefit a patient and cure their disease. When a patient
cannot afford to pay for their medication, they lose out on the optimal
benefits of proper and adequate dosages.
High prescription costs don't just affect patients in the short run,
but also deteriorates their overall quality of life, as they are exposed
to chronic illnesses that could have been prevented by that first
prescription. Evidence from studies indicates that insulin therapy as a treatment for patients with high glucose levels that are not yet diabetic, leads to a decrease in insulin resistance, which benefits patients.
References
Common measures taken to reduce costs
Consumers
commonly respond to high or increasing drug prices by doing what they
can to save drug costs. The most commonly recommended course of action
for consumers who seek to lower their drug costs is for them to tell
their own doctor and pharmacist that they need to save money and then
ask for advice.
Doctors and pharmacists are professionals who know their fields and are
the most likely source of information about options for reducing cost.
Depending on the country and health policies implemented, there
are also options to search for the most convenient and affordable health
insurance plans without having to consult a healthcare provider or
obtain insurance through the employer. However, those who seek to
purchase insurance individually through the individual market are most
likely to be underinsured and therefore could potentially have a higher
prescription cost.
There can be significant variation of prices for drugs in different pharmacies, even within a single geographical area. Because of this, some people check prices at multiple pharmacies to seek lower prices. Online pharmacies can offer low prices but many consumers using online services have experienced Internet fraud and other problems, such as long shipping times from overseas and a higher insecurity regarding quality, genuineness and safety of the ordered products.
Some consumers lower costs by asking their doctor for generic drugs when available. Because pharmaceutical companies often set prices by pills rather than by dose, consumers can sometimes buy double-dose pills, split the pills themselves with their doctor's permission, and save money in the process.
Not purchasing the medications / inaccessibility
In countries without universal healthcare, there can be unaffordable out-of-pocket costs for needed medications. Approximately 25% of Americans find it difficult to afford prescription drugs. In the case of expensive anti-obesity medications it has been noted that many people "who could most benefit from weight loss may be unable to afford such expensive drugs".
This may be of higher concern for conditions that are more risky or
detrimental to health and/or which, unlike obesity, don't have
additional treatment options that are both widely known and effective –
like further improvements in diet and physical activity in the case of
obesity. A study found that among U.S. Medicare beneficiaries without
subsidies, 30% of prescriptions
written for anticancer drugs, 22% for hepatitis C, and more than 50%
for disease-modifying therapies for either immune system disorders or
hypercholesterolemia were not filled by patients.
The right to science and culture is one of the rights in the Universal Declaration of Human Rights
according to which "Everyone has the right freely to participate in the
cultural life of the community, to enjoy the arts and to share in
scientific advancement and its benefits."
Global spending on prescription drugs in 2020 may have been ~$1.3
trillion and "The high cost of prescription drugs threatens healthcare
budgets, and limits funding available for other areas in which public investment is needed".
Prescription drug prices in the United States have been among the
highest in the world. The high cost of prescription drugs became a major
topic of discussion in the new millennium, leading up to the U.S. health care reform
debate of 2009, and received renewed attention in 2015. High prices
have been attributed to monopolies given to manufacturers by the
government and a lack of ability for organizations to negotiate prices.
Individuals are able to enroll in health insurance plans, which
often include prescription medication coverage. However, insurance
companies decide which drugs they will cover by creating a formulary.
If a medication is not on this list, the insurance company may require
people to pay more money out-of-pocket compared to other medications
that are on the formulary. There are also often tiers within this
approved drug list, as the insurance company may be willing to cover a
portion of one drug but prefer and completely cover a cheaper
alternative.
Medicare Part D
is a branch of Medicare that helps to cover costs of prescription
medications for patients aged 65 and up. From 2010 to 2018, the Part D
plan "nearly quadrupled" its spending on the catastrophic coverage
phase. This increase in spending is attributed to the rising pricing of prescription medications.
It varies by region in the United Kingdom.
In Wales, Scotland and Northern Ireland prescription costs have been
completely abolished, however in England the current prescription cost
for adults as of 1 April 2021 is £9.35 per item dispensed. There are subsidised costs for those claiming Universal Credit.
Developing world
In developing countries medications make up between 25 and 70% of health care costs. Many medications are beyond the reach of the majority of the population. There have been attempts both by international agreements and by pharmaceutical companies to provide drugs at low cost, either supplied by manufacturers who own the drugs, or manufactured locally as generic versions of drugs which are elsewhere protected by patent. Countries without manufacturing capability may import such generics.
The pharmaceutical industry is an industry in medicine that discovers, develops, produces, and markets pharmaceutical drugs for use as medications to be administered to patients (or self-administered), with the aim to cure and prevent diseases, or alleviate symptoms. Pharmaceutical companies may deal in generic or brand medications and medical devices. They are subject to a variety of laws and regulations that govern the patenting, testing, safety, efficacy using drug testing and marketing of drugs.
The global pharmaceuticals market produced treatments worth $1,228.45
billion in 2020 and showed a compound annual growth rate (CAGR) of 1.8%.
Mid-1800s – 1945: From botanicals to the first synthetic drugs
The
modern era of pharmaceutical industry began with local apothecaries
that expanded from their traditional role of distributing botanical
drugs such as morphine and quinine to wholesale manufacture in the mid-1800s, and from discoveries resulting from applied research. Intentional drug discovery from plants began with the isolation between 1803 and 1805 of morphine – an analgesic and sleep-inducing agent – from opium by the German apothecary assistant Friedrich Sertürner, who named this compound after the Greek god of dreams, Morpheus. By the late 1880s, German dye manufacturers had perfected the purification of individual organic compounds from tar and other mineral sources and had also established rudimentary methods in organic chemical synthesis.
The development of synthetic chemical methods allowed scientists to
systematically vary the structure of chemical substances, and growth in
the emerging science of pharmacology expanded their ability to evaluate the biological effects of these structural changes.
Epinephrine, norepinephrine, and amphetamine
By the 1890s, the profound effect of adrenal
extracts on many different tissue types had been discovered, setting
off a search both for the mechanism of chemical signalling and efforts
to exploit these observations for the development of new drugs. The
blood pressure raising and vasoconstrictive effects of adrenal extracts
were of particular interest to surgeons as hemostatic
agents and as treatment for shock, and a number of companies developed
products based on adrenal extracts containing varying purities of the
active substance. In 1897, John Abel of Johns Hopkins University identified the active principle as epinephrine, which he isolated in an impure state as the sulfate salt. Industrial chemist Jōkichi Takamine later developed a method for obtaining epinephrine in a pure state, and licensed the technology to Parke-Davis. Parke-Davis marketed epinephrine under the trade name Adrenalin. Injected epinephrine proved to be especially efficacious for the acute treatment of asthma attacks, and an inhaled version was sold in the United States until 2011 (Primatene Mist). By 1929 epinephrine had been formulated into an inhaler for use in the treatment of nasal congestion.
While highly effective, the requirement for injection limited the use of epinephrine and orally active derivatives were sought. A structurally similar compound, ephedrine, was identified by Japanese chemists in the Ma Huang plant and marketed by Eli Lilly as an oral treatment for asthma. Following the work of Henry Dale and George Barger at Burroughs-Wellcome, academic chemist Gordon Alles synthesized amphetamine
and tested it in asthma patients in 1929. The drug proved to have only
modest anti-asthma effects but produced sensations of exhilaration and
palpitations. Amphetamine was developed by Smith, Kline and French as a nasal decongestant under the trade name Benzedrine Inhaler. Amphetamine was eventually developed for the treatment of narcolepsy, post-encephalitic parkinsonism,
and mood elevation in depression and other psychiatric indications. It
received approval as a New and Nonofficial Remedy from the American Medical Association for these uses in 1937, and remained in common use for depression until the development of tricyclic antidepressants in the 1960s.
Discovery and development of the barbiturates
Diethylbarbituric acid was the first marketed barbiturate. It was sold by Bayer under the trade name Veronal.
In 1903, Hermann Emil Fischer and Joseph von Mering
disclosed their discovery that diethylbarbituric acid, formed from the
reaction of diethylmalonic acid, phosphorus oxychloride and urea,
induces sleep in dogs. The discovery was patented and licensed to Bayer pharmaceuticals, which marketed the compound under the trade name Veronal
as a sleep aid beginning in 1904. Systematic investigations of the
effect of structural changes on potency and duration of action led to
the discovery of phenobarbital
at Bayer in 1911 and the discovery of its potent anti-epileptic
activity in 1912. Phenobarbital was among the most widely used drugs
for the treatment of epilepsy through the 1970s, and as of 2014, remains on the World Health Organizations list of essential medications.
The 1950s and 1960s saw increased awareness of the addictive properties
and abuse potential of barbiturates and amphetamines and led to
increasing restrictions on their use and growing government oversight of
prescribers. Today, amphetamine is largely restricted to use in the
treatment of attention deficit disorder and phenobarbital in the treatment of epilepsy.
In 1958, Leo Sternbach discovered the first benzodiazepine, chlordiazepoxide (Librium). Dozens of other benzodiazepines have been developed and are in use, some of the more popular drugs being diazepam (Valium), alprazolam (Xanax), clonazepam (Klonopin), and lorazepam
(Ativan). Due to their far superior safety and therapeutic properties,
benzodiazepines have largely replaced the use of barbiturates in
medicine, except in certain special cases. When it was later discovered
that benzodiazepines, like barbiturates, significantly lose their
effectiveness and can have serious side effects when taken long-term, Heather Ashton researched benzodiazepine dependence and developed a protocol to discontinue their use.
Insulin
A series of experiments performed from the late 1800s to the early 1900s revealed that diabetes is caused by the absence of a substance normally produced by the pancreas. In 1869, Oskar Minkowski and Joseph von Mering found that diabetes could be induced in dogs by surgical removal of the pancreas. In 1921, Canadian professor Frederick Banting
and his student Charles Best repeated this study and found that
injections of pancreatic extract reversed the symptoms produced by
pancreas removal. Soon, the extract was demonstrated to work in people,
but development of insulin therapy as a routine medical procedure was
delayed by difficulties in producing the material in sufficient quantity
and with reproducible purity. The researchers sought assistance from
industrial collaborators at Eli Lilly and Co. based on the company's
experience with large scale purification of biological materials.
Chemist George B. Walden
of Eli Lilly and Company found that careful adjustment of the pH of the
extract allowed a relatively pure grade of insulin to be produced.
Under pressure from Toronto University and a potential patent challenge
by academic scientists who had independently developed a similar
purification method, an agreement was reached for non-exclusive
production of insulin by multiple companies. Prior to the discovery and
widespread availability of insulin therapy the life expectancy of
diabetics was only a few months.
Early anti-infective research: Salvarsan, Prontosil, Penicillin and vaccines
The
development of drugs for the treatment of infectious diseases was a
major focus of early research and development efforts; in 1900,
pneumonia, tuberculosis, and diarrhea were the three leading causes of
death in the United States and mortality in the first year of life
exceeded 10%.
In 1911 arsphenamine, the first synthetic anti-infective drug, was developed by Paul Ehrlich and chemist Alfred Bertheim of the Institute of Experimental Therapy in Berlin. The drug was given the commercial name Salvarsan. Ehrlich, noting both the general toxicity of arsenic
and the selective absorption of certain dyes by bacteria, hypothesized
that an arsenic-containing dye with similar selective absorption
properties could be used to treat bacterial infections. Arsphenamine
was prepared as part of a campaign to synthesize a series of such
compounds, and was found to exhibit partially selective toxicity.
Arsphenamine proved to be the first effective treatment for syphilis, a disease until then had been incurable and led inexorably to severe skin ulceration, neurological damage, and death.
Ehrlich's approach of systematically varying the chemical
structure of synthetic compounds and measuring the effects of these
changes on biological activity was pursued broadly by industrial
scientists, including Bayer scientists Josef Klarer, Fritz Mietzsch, and Gerhard Domagk. This work, also based on the testing of compounds available from the German dye industry, led to the development of Prontosil, the first representative of the sulfonamide class of antibiotics.
Compared to arsphenamine, the sulfonamides had a broader spectrum of
activity and were far less toxic, rendering them useful for infections
caused by pathogens such as streptococci. In 1939, Domagk received the Nobel Prize in Medicine for this discovery. Nonetheless, the dramatic decrease in deaths from infectious diseases that occurred prior to World War II
was primarily the result of improved public health measures such as
clean water and less crowded housing, and the impact of anti-infective
drugs and vaccines was significant mainly after World War II.
In 1928, Alexander Fleming discovered the antibacterial effects of penicillin,
but its exploitation for the treatment of human disease awaited the
development of methods for its large scale production and purification.
These were developed by a U.S. and British government-led consortium of
pharmaceutical companies during the world war.
There was early progress toward the development of vaccines
throughout this period, primarily in the form of academic and
government-funded basic research directed toward the identification of
the pathogens responsible for common communicable diseases. In 1885, Louis Pasteur and Pierre Paul Émile Roux created the first rabies vaccine. The first diphtheria vaccines were produced in 1914 from a mixture of diphtheria toxin and antitoxin
(produced from the serum of an inoculated animal), but the safety of
the inoculation was marginal and it was not widely used. The United
States recorded 206,000 cases of diphtheria in 1921, resulting in 15,520
deaths. In 1923, parallel efforts by Gaston Ramon at the Pasteur Institute and Alexander Glenny at the Wellcome Research Laboratories (later part of GlaxoSmithKline) led to the discovery that a safer vaccine could be produced by treating diphtheria toxin with formaldehyde. In 1944, Maurice Hilleman of Squibb Pharmaceuticals developed the first vaccine against Japanese Encephalitis. Hilleman later moved to Merck, where he played a key role in the development of vaccines against measles, mumps, chickenpox, rubella, hepatitis A, hepatitis B, and meningitis.
Unsafe drugs and early industry regulation
In 1937 over 100 people died after ingesting a solution of the antibacterial sulfanilamide formulated in the toxic solvent diethylene glycol.
Prior to the 20th century, drugs were generally produced by small
scale manufacturers with little regulatory control over manufacturing or
claims of safety and efficacy. To the extent that such laws did exist,
enforcement was lax. In the United States, increased regulation of
vaccines and other biological drugs was spurred by tetanus outbreaks and
deaths caused by the distribution of contaminated smallpox vaccine and
diphtheria antitoxin.
The Biologics Control Act of 1902 required that federal government
grant premarket approval for every biological drug and for the process
and facility producing such drugs. This was followed in 1906 by the Pure Food and Drugs Act,
which forbade the interstate distribution of adulterated or misbranded
foods and drugs. A drug was considered misbranded if it contained
alcohol, morphine, opium, cocaine, or any of several other potentially
dangerous or addictive drugs, and if its label failed to indicate the
quantity or proportion of such drugs. The government's attempts to use
the law to prosecute manufacturers for making unsupported claims of
efficacy were undercut by a Supreme Court ruling restricting the federal
government's enforcement powers to cases of incorrect specification of
the drug's ingredients.
In 1937 over 100 people died after ingesting "Elixir Sulfanilamide" manufactured by S.E. Massengill Company of Tennessee. The product was formulated in diethylene glycol, a highly toxic solvent that is now widely used as antifreeze.
Under the laws extant at that time, prosecution of the manufacturer
was possible only under the technicality that the product had been
called an "elixir", which literally implied a solution in ethanol. In
response to this episode, the U.S. Congress passed the Federal Food, Drug, and Cosmetic Act of 1938,
which for the first time required pre-market demonstration of safety
before a drug could be sold, and explicitly prohibited false therapeutic
claims.
The post-war years, 1945–1970
Further advances in anti-infective research
The aftermath of World War II saw an explosion in the discovery of new classes of antibacterial drugs including the cephalosporins (developed by Eli Lilly based on the seminal work of Giuseppe Brotzu and Edward Abraham), streptomycin (discovered during a Merck-funded research program in Selman Waksman's laboratory), the tetracyclines (discovered at Lederle Laboratories, now a part of Pfizer), erythromycin (discovered at Eli Lilly and Co.)
and their extension to an increasingly wide range of bacterial
pathogens. Streptomycin, discovered during a Merck-funded research
program in Selman Waksman's laboratory at Rutgers in 1943, became the
first effective treatment for tuberculosis. At the time of its
discovery, sanitoriums for the isolation of tuberculosis-infected people
were an ubiquitous feature of cities in developed countries, with 50%
dying within 5 years of admission.
A Federal Trade Commission
report issued in 1958 attempted to quantify the effect of antibiotic
development on American public health. The report found that over the
period 1946–1955, there was a 42% drop in the incidence of diseases for
which antibiotics were effective and only a 20% drop in those for which
antibiotics were not effective. The report concluded that "it appears
that the use of antibiotics, early diagnosis, and other factors have
limited the epidemic spread and thus the number of these diseases which
have occurred". The study further examined mortality rates for eight
common diseases for which antibiotics offered effective therapy
(syphilis, tuberculosis, dysentery, scarlet fever, whooping cough,
meningococcal infections, and pneumonia), and found a 56% decline over
the same period. Notable among these was a 75% decline in deaths due to tuberculosis.
Measles cases reported in the United States before and after introduction of the vaccinePercent surviving by age in 1900, 1950, and 1997
During the years 1940–1955, the rate of decline in the U.S. death rate
accelerated from 2% per year to 8% per year, then returned to the
historical rate of 2% per year. The dramatic decline in the immediate
post-war years has been attributed to the rapid development of new
treatments and vaccines for infectious disease that occurred during
these years.Vaccine development continued to accelerate, with the most notable achievement of the period being Jonas Salk's 1954 development of the polio vaccine under the funding of the non-profit National Foundation for Infantile Paralysis. The vaccine process was never patented but was instead given to pharmaceutical companies to manufacture as a low-cost generic. In 1960 Maurice Hilleman of Merck Sharp & Dohme identified the SV40
virus, which was later shown to cause tumors in many mammalian species.
It was later determined that SV40 was present as a contaminant in
polio vaccine lots that had been administered to 90% of the children in
the United States.
The contamination appears to have originated both in the original cell
stock and in monkey tissue used for production. In 2004 the National Cancer Institute announced that it had concluded that SV40 is not associated with cancer in people.
Other notable new vaccines of the period include those for measles (1962, John Franklin Enders
of Children's Medical Center Boston, later refined by Maurice Hilleman
at Merck), Rubella (1969, Hilleman, Merck) and mumps (1967, Hilleman,
Merck)
The United States incidences of rubella, congenital rubella syndrome,
measles, and mumps all fell by >95% in the immediate aftermath of
widespread vaccination. The first 20 years of licensed measles vaccination in the U.S. prevented an estimated 52 million cases of the disease, 17,400 cases of mental retardation, and 5,200 deaths.
Development and marketing of antihypertensive drugs
Early developments in the field of treating hypertension included
quaternary ammonium ion sympathetic nervous system blocking agents, but
these compounds were never widely used due to their severe side
effects, because the long-term health consequences of high blood
pressure had not yet been established, and because they had to be
administered by injection.
In 1952 researchers at Ciba discovered the first orally available vasodilator, hydralazine. A major shortcoming of hydralazine monotherapy was that it lost its effectiveness over time (tachyphylaxis). In the mid-1950s Karl H. Beyer, James M. Sprague, John E. Baer, and Frederick C. Novello of Merck and Co. discovered and developed chlorothiazide, which remains the most widely used antihypertensive drug today. This development was associated with a substantial decline in the mortality rate among people with hypertension. The inventors were recognized by a Public Health Lasker Award
in 1975 for "the saving of untold thousands of lives and the
alleviation of the suffering of millions of victims of hypertension".
A 2009 Cochrane review concluded that thiazide antihypertensive drugs reduce the risk of death (RR
0.89), stroke (RR 0.63), coronary heart disease (RR 0.84), and
cardiovascular events (RR 0.70) in people with high blood pressure.
In the ensuring years other classes of antihypertensive drug were
developed and found wide acceptance in combination therapy, including
loop diuretics (Lasix/furosemide, Hoechst Pharmaceuticals, 1963), beta blockers (ICI Pharmaceuticals, 1964) ACE inhibitors, and angiotensin receptor blockers.
ACE inhibitors reduce the risk of new onset kidney disease [RR 0.71]
and death [RR 0.84] in diabetic patients, irrespective of whether they
have hypertension.
Oral Contraceptives
Prior
to the Second World war, birth control was prohibited in many
countries, and in the United States even the discussion of contraceptive
methods sometimes led to prosecution under Comstock laws. The history of the development of oral contraceptives is thus closely tied to the birth control movement and the efforts of activists Margaret Sanger, Mary Dennett, and Emma Goldman. Based on fundamental research performed by Gregory Pincus and synthetic methods for progesterone developed by Carl Djerassi at Syntex and by Frank Colton at G.D. Searle & Co., the first oral contraceptive, Enovid,
was developed by G.D. Searle & Co. and approved by the FDA in 1960.
The original formulation incorporated vastly excessive doses of
hormones, and caused severe side effects. Nonetheless, by 1962, 1.2
million American women were on the pill, and by 1965 the number had
increased to 6.5 million.
The availability of a convenient form of temporary contraceptive led to
dramatic changes in social mores including expanding the range of
lifestyle options available to women, reducing the reliance of women on
men for contraceptive practice, encouraging the delay of marriage, and
increasing pre-marital co-habitation.
Thalidomide and the Kefauver-Harris Amendments
Malformation of a baby born to a mother who had taken thalidomide while pregnant
In the U.S., a push for revisions of the FD&C Act emerged from Congressional hearings led by Senator Estes Kefauver
of Tennessee in 1959. The hearings covered a wide range of policy
issues, including advertising abuses, questionable efficacy of drugs,
and the need for greater regulation of the industry. While momentum for
new legislation temporarily flagged under extended debate, a new tragedy
emerged that underscored the need for more comprehensive regulation and
provided the driving force for the passage of new laws.
On 12 September 1960, an American licensee, the William S.
Merrell Company of Cincinnati, submitted a new drug application for
Kevadon (thalidomide), a sedative that had been marketed in Europe since 1956. The FDA medical officer in charge of reviewing the compound, Frances Kelsey,
believed that the data supporting the safety of thalidomide was
incomplete. The firm continued to pressure Kelsey and the FDA to approve
the application until November 1961, when the drug was pulled off the
German market because of its association with grave congenital
abnormalities. Several thousand newborns in Europe and elsewhere
suffered the teratogenic
effects of thalidomide. Without approval from the FDA, the firm
distributed Kevadon to over 1,000 physicians there under the guise of
investigational use. Over 20,000 Americans received thalidomide in this
"study," including 624 pregnant patients, and about 17 known newborns
suffered the effects of the drug.
The thalidomide tragedy resurrected Kefauver's bill to enhance drug regulation that had stalled in Congress, and the Kefauver-Harris Amendment
became law on 10 October 1962. Manufacturers henceforth had to prove to
FDA that their drugs were effective as well as safe before they could
go on the US market. The FDA received authority to regulate advertising
of prescription drugs and to establish good manufacturing practices.
The law required that all drugs introduced between 1938 and 1962 had to
be effective. An FDA - National Academy of Sciences collaborative study
showed that nearly 40 percent of these products were not effective. A
similarly comprehensive study of over-the-counter products began ten
years later.
In 1971, Akira Endo, a Japanese biochemist working for the pharmaceutical company Sankyo, identified mevastatin (ML-236B), a molecule produced by the fungus Penicillium citrinum, as an inhibitor of HMG-CoA reductase, a critical enzyme used by the body to produce cholesterol. Animal trials showed very good inhibitory effect as in clinical trials,
however a long-term study in dogs found toxic effects at higher doses
and as a result mevastatin was believed to be too toxic for human use.
Mevastatin was never marketed, because of its adverse effects of tumors,
muscle deterioration, and sometimes death in laboratory dogs.
P. Roy Vagelos, chief scientist and later CEO of Merck & Co, was interested, and made several trips to Japan starting in 1975. By 1978, Merck had isolated lovastatin (mevinolin, MK803) from the fungus Aspergillus terreus, first marketed in 1987 as Mevacor.
In April 1994, the results of a Merck-sponsored study, the Scandinavian Simvastatin Survival Study, were announced. Researchers tested simvastatin,
later sold by Merck as Zocor, on 4,444 patients with high cholesterol
and heart disease. After five years, the study concluded the patients
saw a 35% reduction in their cholesterol, and their chances of dying of a
heart attack were reduced by 42%. In 1995, Zocor and Mevacor both made Merck over US$1 billion. Endo was awarded the 2006 Japan Prize, and the Lasker-DeBakey Clinical Medical Research Award in 2008.
21st Century
Since several decades, biologics have been rising in importance in comparison with small molecules treatments. The biotech
subsector, animal health and the Chinese pharmaceutical sector have
also grown substantially. On the organisational side, big international
pharma corporations have experienced a substantial decline of their
value share. Also, the core generic sector (substitutions for off-patent
brands) has been downvalued due to competition.
Torreya estimated the pharmaceutical industry to have a market
valuation of US$7.03 trillion by February 2021 from which US$6.1
trillion is the value of the publicly traded companies. Small Molecules
modality had 58.2% of the valuation share down from 84.6% in 2003.
Biologics was up at 30.5% from 14.5%. The valuation share of Chinese
Pharma grew from 2003 to 2021 from 1% to 12% overtaking Switzerland who
is now ranked number 3 with 7.7%. The United States had still by far the
most valued pharmaceutical industry with 40% of global valuation.
2023 was a year of layoffs for at least 10,000 people across 129
public biotech firms globally, albeit most small firms; this was a
significant increase in reductions versus 2022 was in part due to
worsening global financial conditions and a reduction in investment by
"generalist investors". Private firms also saw a significant reduction in venture capital investment in 2023, continuing a downward trend started in 2021, which also led to a reduction in initial public offerings being floated.
Impact of Mergers and Acquisitions
A
2022 article articulated this notion succinctly by saying "In the
business of drug development, deals can be just as important as
scientific breakthroughs", typically referred to as pharmaceutical
M&A (for mergers and acquisitions).
It highlighted that some of the most impactful of the remedies of the
early 21st Century were only made possible through M&A activities,
specifically noting Keytruda and Humira.
Drug discovery is the process by which potential drugs
are discovered or designed. In the past, most drugs have been
discovered either by isolating the active ingredient from traditional
remedies or by serendipitous discovery. Modern biotechnology often focuses on understanding the metabolic pathways related to a disease state or pathogen, and manipulating these pathways using molecular biology or biochemistry. A great deal of early-stage drug discovery has traditionally been carried out by universities and research institutions.
Drug development refers to activities undertaken after a
compound is identified as a potential drug in order to establish its
suitability as a medication. Objectives of drug development are to
determine appropriate formulation and dosing, as well as to establish safety. Research in these areas generally includes a combination of in vitro studies, in vivo studies, and clinical trials. The cost of late stage development has meant it is usually done by the larger pharmaceutical companies.
The pharmaceuticals and biotechnology industry spends more than 15% of
its net sales for Research & Development which is in comparison with
other industries by far the highest share.
Often, large multinational corporations exhibit vertical integration,
participating in a broad range of drug discovery and development,
manufacturing and quality control, marketing, sales, and distribution.
Smaller organizations, on the other hand, often focus on a specific
aspect such as discovering drug candidates or developing formulations.
Often, collaborative agreements between research organizations and large
pharmaceutical companies are formed to explore the potential of new
drug substances. More recently, multi-nationals are increasingly relying
on contract research organizations to manage drug development.
The cost of innovation
Drug
discovery and development are very expensive; of all compounds
investigated for use in humans only a small fraction are eventually approved in most nations by government-appointed medical institutions or boards, who have to approve new drugs before they can be marketed in those countries. In 2010 18 NMEs (New Molecular Entities) were approved and three biologics
by the FDA, or 21 in total, which is down from 26 in 2009 and 24 in
2008. On the other hand, there were only 18 approvals in total in 2007
and 22 back in 2006. Since 2001, the Center for Drug Evaluation and
Research has averaged 22.9 approvals a year.
This approval comes only after heavy investment in pre-clinical development and clinical trials, as well as a commitment to ongoing safety monitoring.
Drugs which fail part-way through this process often incur large costs,
while generating no revenue in return. If the cost of these failed
drugs is taken into account, the cost of developing a successful new
drug (new chemical entity, or NCE), has been estimated at US$1.3 billion (not including marketing expenses).
Professors Light and Lexchin reported in 2012, however, that the rate
of approval for new drugs has been a relatively stable average rate of
15 to 25 for decades.
Industry-wide research and investment reached a record $65.3 billion in 2009.
While the cost of research in the U.S. was about $34.2 billion between
1995 and 2010, revenues rose faster (revenues rose by $200.4 billion in
that time).
A study by the consulting firm Bain & Company
reported that the cost for discovering, developing and launching (which
factored in marketing and other business expenses) a new drug (along
with the prospective drugs that fail) rose over a five-year period to
nearly $1.7 billion in 2003. According to Forbes, by 2010 development costs were between $4 billion to $11 billion per drug.
Some of these estimates also take into account the opportunity cost of investing capital many years before revenues are realized (see Time-value of money).
Because of the very long time needed for discovery, development, and
approval of pharmaceuticals, these costs can accumulate to nearly half
the total expense. A direct consequence within the pharmaceutical
industry value chain is that major pharmaceutical multinationals tend to
increasingly outsource risks related to fundamental research, which
somewhat reshapes the industry ecosystem with biotechnology companies
playing an increasingly important role, and overall strategies being
redefined accordingly. Some approved drugs, such as those based on re-formulation of an existing active ingredient (also referred to as Line-extensions) are much less expensive to develop.
Product approval
In the United States, new pharmaceutical products must be approved by the Food and Drug Administration (FDA) as being both safe and effective. This process generally involves submission of an Investigational New Drug
filing with sufficient pre-clinical data to support proceeding with
human trials. Following IND approval, three phases of progressively
larger human clinical trials may be conducted. Phase I generally studies
toxicity using healthy volunteers. Phase II can include pharmacokinetics and dosing
in patients, and Phase III is a very large study of efficacy in the
intended patient population. Following the successful completion of
phase III testing, a New Drug Application
is submitted to the FDA. The FDA reviews the data and if the product is
seen as having a positive benefit-risk assessment, approval to market
the product in the US is granted.
A fourth phase of post-approval surveillance is also often
required due to the fact that even the largest clinical trials cannot
effectively predict the prevalence of rare side-effects. Postmarketing surveillance
ensures that after marketing the safety of a drug is monitored closely.
In certain instances, its indication may need to be limited to
particular patient groups, and in others the substance is withdrawn from
the market completely.
The FDA provides information about approved drugs at the Orange Book site.
In many non-US western countries, a 'fourth hurdle' of cost effectiveness analysis
has developed before new technologies can be provided. This focuses on
the 'efficacy price tag' (in terms of, for example, the cost per QALY)
of the technologies in question. In England and Wales NICE decides
whether and in what circumstances drugs and technologies will be made
available by the NHS, whilst similar arrangements exist with the Scottish Medicines Consortium in Scotland, and the Pharmaceutical Benefits Advisory Committee
in Australia. A product must pass the threshold for cost-effectiveness
if it is to be approved. Treatments must represent 'value for money' and
a net benefit to society.
There are special rules
for certain rare diseases ("orphan diseases") in several major drug
regulatory territories. For example, diseases involving fewer than
200,000 patients in the United States, or larger populations in certain
circumstances are subject to the Orphan Drug Act.
Because medical research and development of drugs to treat such
diseases is financially disadvantageous, companies that do so are
rewarded with tax reductions, fee waivers, and market exclusivity on
that drug for a limited time (seven years), regardless of whether the
drug is protected by patents.
In 2011, global spending on prescription drugs topped $954 billion,
even as growth slowed somewhat in Europe and North America. The United
States accounts for more than a third of the global pharmaceutical
market, with $340 billion in annual sales followed by the EU and Japan. Emerging markets such as China, Russia, South Korea and Mexico outpaced that market, growing a huge 81 percent.
The top ten best-selling drugs of 2013 totaled $75.6 billion in sales, with the anti-inflammatory drug Humira
being the best-selling drug worldwide at $10.7 billion in sales. The
second and third best selling were Enbrel and Remicade, respectively.
The top three best-selling drugs in the United States in 2013 were
Abilify ($6.3 billion,) Nexium ($6 billion) and Humira ($5.4 billion). The best-selling drug ever, Lipitor, averaged $13 billion annually and netted $141 billion total over its lifetime before Pfizer's patent expired in November 2011.
IMS Health
publishes an analysis of trends expected in the pharmaceutical industry
in 2007, including increasing profits in most sectors despite loss of
some patents, and new 'blockbuster' drugs on the horizon.
Patents and generics
Depending on a number of considerations, a company may apply for and be granted a patent for the drug, or the process of producing the drug, granting exclusivity rights typically for about 20 years.
However, only after rigorous study and testing, which takes 10 to 15
years on average, will governmental authorities grant permission for the
company to market and sell the drug.
Patent protection enables the owner of the patent to recover the costs
of research and development through high profit margins for the branded drug. When the patent protection for the drug expires, a generic drug
is usually developed and sold by a competing company. The development
and approval of generics is less expensive, allowing them to be sold at a
lower price. Often the owner of the branded drug will introduce a
generic version before the patent expires in order to get a head start
in the generic market.
Restructuring has therefore become routine, driven by the patent
expiration of products launched during the industry's "golden era" in
the 1990s and companies' failure to develop sufficient new blockbuster
products to replace lost revenues.
Prescriptions
In
the U.S., the value of prescriptions increased over the period of 1995
to 2005 by 3.4 billion annually, a 61 percent increase. Retail sales of prescription drugs
jumped 250 percent from $72 billion to $250 billion, while the average
price of prescriptions more than doubled from $30 to $68.
Advertising is common in healthcare journals as well as through more
mainstream media routes. In some countries, notably the US, they are
allowed to advertise directly to the general public. Pharmaceutical
companies generally employ salespeople (often called 'drug reps' or, an
older term, 'detail men') to market directly and personally to
physicians and other healthcare providers. In some countries, notably
the US, pharmaceutical companies also employ lobbyists to influence politicians. Marketing of prescription drugs in the US is regulated by the federal Prescription Drug Marketing Act of 1987.
The pharmaceutical marketing plan incorporates the spending plans,
channels, and thoughts which will take the drug association, and its
items and administrations, forward in the current scene.
To healthcare professionals
The book Bad Pharma
also discusses the influence of drug representatives, how ghostwriters
are employed by the drug companies to write papers for academics to
publish, how independent the academic journals really are, how the drug
companies finance doctors' continuing education, and how patients'
groups are often funded by industry.
Since the 1980s, new methods of marketing for prescription drugs to
consumers have become important. Direct-to-consumer media advertising
was legalised in the FDA Guidance for Industry on Consumer-Directed
Broadcast Advertisements.
There has been increasing controversy surrounding pharmaceutical
marketing and influence. There have been accusations and findings of
influence on doctors and other health professionals through drug reps
including the constant provision of marketing 'gifts' and biased
information to health professionals;
highly prevalent advertising in journals and conferences; funding
independent healthcare organizations and health promotion campaigns;
lobbying physicians and politicians (more than any other industry in the
US); sponsorship of medical schools or nurse training; sponsorship of continuing educational events, with influence on the curriculum; and hiring physicians as paid consultants on medical advisory boards.
Some advocacy groups, such as No Free Lunch and AllTrials,
have criticized the effect of drug marketing to physicians because they
say it biases physicians to prescribe the marketed drugs even when
others might be cheaper or better for the patient.
There have been related accusations of disease mongering
(over-medicalising) to expand the market for medications. An inaugural
conference on that subject took place in Australia in 2006. In 2009, the Government-funded National Prescribing Service launched the "Finding Evidence – Recognising Hype" program, aimed at educating GPs on methods for independent drug analysis.
Meta-analyses have shown that psychiatric studies sponsored by
pharmaceutical companies are several times more likely to report
positive results, and if a drug company employee is involved the effect
is even larger. Influence has also extended to the training of doctors and nurses in medical schools, which is being fought.
It has been argued that the design of the Diagnostic and Statistical Manual of Mental Disorders and the expansion of the criteria represents an increasing medicalization of human nature, or "disease mongering", driven by drug company influence on psychiatry. The potential for direct conflict of interest
has been raised, partly because roughly half the authors who selected
and defined the DSM-IV psychiatric disorders had or previously had
financial relationships with the pharmaceutical industry.
In the US, starting in 2013, under the Physician Financial
Transparency Reports (part of the Sunshine Act), the Centers for
Medicare & Medicaid Services has to collect information from
applicable manufacturers and group purchasing organizations in order to
report information about their financial relationships with physicians
and hospitals. Data are made public in the Centers for Medicare &
Medicaid Services website. The expectation is that relationship between
doctors and Pharmaceutical industry will become fully transparent.
In a report conducted by OpenSecrets,
there were more than 1,100 lobbyists working in some capacity for the
pharmaceutical business in 2017. In the first quarter of 2017, the
health products and pharmaceutical industry spent $78 million on
lobbying members of the United States Congress.
The pricing of pharmaceuticals is becoming a major challenge for health systems. A November 2020 study by the West Health Policy Center stated that more than 1.1 million senior citizens in the U.S. Medicare
program are expected to die prematurely over the next decade because
they will be unable to afford their prescription medications, requiring
an additional $17.7 billion to be spent annually on avoidable medical
costs due to health complications.
Regulatory issues
Ben Goldacre has argued that regulators – such as the Medicines and Healthcare products Regulatory Agency (MHRA) in the UK, or the Food and Drug Administration
(FDA) in the United States – advance the interests of the drug
companies rather than the interests of the public due to revolving door
exchange of employees between the regulator and the companies and
friendships develop between regulator and company employees.
He argues that regulators do not require that new drugs offer an
improvement over what is already available, or even that they be
particularly effective.
Others have argued that excessive regulation suppresses
therapeutic innovation and that the current cost of regulator-required
clinical trials prevents the full exploitation of new genetic and
biological knowledge for the treatment of human disease. A 2012 report
by the President's Council of Advisors on Science and Technology made
several key recommendations to reduce regulatory burdens to new drug
development, including 1) expanding the FDA's use of accelerated
approval processes, 2) creating an expedited approval pathway for drugs
intended for use in narrowly defined populations, and 3) undertaking
pilot projects designed to evaluate the feasibility of a new, adaptive
drug approval process.
Pharmaceutical fraud involves deceptions which bring financial gain to a pharmaceutical company. It affects individuals and public and private insurers. There are several different schemes used to defraud the health care system
which are particular to the pharmaceutical industry. These include:
Good Manufacturing Practice (GMP) Violations, Off Label Marketing, Best
Price Fraud, CME Fraud, Medicaid Price Reporting, and Manufactured
Compound Drugs. Of this amount $2.5 billion was recovered through False Claims Act cases in FY 2010. Examples of fraud cases include the GlaxoSmithKline $3 billion settlement, Pfizer $2.3 billion settlement and Merck & Co. $650 million settlement. Damages from fraud can be recovered by use of the False Claims Act, most commonly under the qui tam provisions which rewards an individual for being a "whistleblower", or relator (law).
Every major company selling atypical antipsychotics—Bristol-Myers Squibb, Eli Lilly and Company, Pfizer, AstraZeneca and Johnson & Johnson—has
either settled recent government cases, under the False Claims Act, for
hundreds of millions of dollars or is currently under investigation for
possible health care fraud. Following charges of illegal marketing, two
of the settlements set records in 2009 for the largest criminal fines
ever imposed on corporations. One involved Eli Lilly's antipsychotic Zyprexa, and the other involved Bextra,
an anti-inflammatory medication used for arthritis. In the Bextra case,
the government also charged Pfizer with illegally marketing another
antipsychotic, Geodon; Pfizer settled that part of the claim for $301 million, without admitting any wrongdoing.
On 2 July 2012, GlaxoSmithKline
pleaded guilty to criminal charges and agreed to a $3 billion
settlement of the largest health-care fraud case in the U.S. and the
largest payment by a drug company. The settlement is related to the company's illegal promotion of prescription drugs, its failure to report safety data, bribing doctors, and promoting medicines for uses for which they were not licensed. The drugs involved were Paxil, Wellbutrin, Advair, Lamictal, and Zofran for off-label, non-covered uses. Those and the drugs Imitrex, Lotronex, Flovent, and Valtrex were involved in the kickback scheme.
The following is a list of the four largest settlements reached
with pharmaceutical companies from 1991 to 2012, rank ordered by the
size of the total settlement. Legal claims against the pharmaceutical
industry have varied widely over the past two decades, including Medicare and Medicaid fraud, off-label promotion, and inadequate manufacturing practices.
In May 2015, the New England Journal of Medicine
emphasized the importance of pharmaceutical industry-physician
interactions for the development of novel treatments, and argued that
moral outrage over industry malfeasance had unjustifiably led many to
overemphasize the problems created by financial conflicts of interest.
The article noted that major healthcare organizations, such as National
Center for Advancing Translational Sciences of the National Institutes
of Health, the President's Council of Advisors on Science and
Technology, the World Economic Forum, the Gates Foundation, the Wellcome
Trust, and the Food and Drug Administration had encouraged greater
interactions between physicians and industry in order to improve
benefits to patients.
Response to COVID-19
In
November 2020 several pharmaceutical companies announced successful
trials of COVID-19 vaccines, with efficacy
of 90 to 95% in preventing infection. Per company announcements and
data reviewed by external analysts, these vaccines are priced at $3 to
$37 per dose. The Wall Street Journal ran an editorial calling for this achievement to be recognized with a Nobel Peace Prize.
Doctors Without Borders
warned that high prices and monopolies on medicines, tests, and
vaccines would prolong the pandemic and cost lives. They urged
governments to prevent profiteering, using compulsory licenses as needed, as had already been done by Canada, Chile, Ecuador, Germany, and Israel.
On 20 February, 46 US lawmakers called for the US government not
to grant monopoly rights when giving out taxpayer development money for
any coronavirus vaccines and treatments, to avoid giving exclusive
control of prices and availability to private manufacturers.
In the United States the government signed agreements in which
research and development and/or the building of manufacturing plants for
potential COVID-19 therapeutics was subsidized. Typically, the
agreement involved the government taking ownership of a certain number
of doses of the product without further payment. For example, under the
auspices of Operation Warp Speed in the United States, the government
subsidized research related to COVID-19 vaccines and therapeutics at
Regeneron,
Johnson and Johnson, Moderna, AstraZeneca, Novavax, Pfizer, and GSK.
Typical terms involved research subsidies of $400 million to $2 billion,
and included government ownership of the first 100 million doses of any
COVID-19 vaccine successfully developed.
American pharmaceutical company Gilead sought and obtained orphan drug status for remdesivir from the US Food and Drug Administration
(FDA) on 23 March 2020. This provision is intended to encourage the
development of drugs affecting fewer than 200,000 Americans by granting
strengthened and extended legal monopoly rights to the manufacturer,
along with waivers on taxes and government fees.
Remdesivir is a candidate for treating COVID-19; at the time the status
was granted, fewer than 200,000 Americans had COVID-19, but numbers
were climbing rapidly as the COVID-19 pandemic reached the US, and crossing the threshold soon was considered inevitable. Remdesivir was developed by Gilead with over $79 million in U.S. government funding.
In May 2020, Gilead announced that it would provide the first 940,000
doses of remdesivir to the federal government free of charge. After facing strong public reactions, Gilead gave up the "orphan drug" status for remdesivir on 25 March. Gilead retains 20-year remdesivir patents in more than 70 countries.
In May 2020, the company further announced that it was in discussions
with several generics companies to provide rights to produce remdesivir
for developing countries, and with the Medicines Patent Pool to provide
broader generic access.
Developing world
Patents
Patents have been criticized in the developing world, as they are thought to reduce access to existing medicines. Reconciling patents and universal access to medicine would require an efficient international policy of price discrimination. Moreover, under the TRIPS agreement of the World Trade Organization, countries must allow pharmaceutical products to be patented. In 2001, the WTO adopted the Doha Declaration,
which indicates that the TRIPS agreement should be read with the goals
of public health in mind, and allows some methods for circumventing
pharmaceutical monopolies: via compulsory licensing or parallel imports, even before patent expiration.
In March 2001, 40 multi-national pharmaceutical companies brought litigation against South Africa for its Medicines Act,
which allowed the generic production of antiretroviral drugs (ARVs) for
treating HIV, despite the fact that these drugs were on-patent. HIV was and is an epidemic
in South Africa, and ARVs at the time cost between US$10,000 and
US$15,000 per patient per year. This was unaffordable for most South
African citizens, and so the South African government committed to
providing ARVs at prices closer to what people could afford. To do so,
they would need to ignore the patents on drugs and produce generics
within the country (using a compulsory license), or import them from
abroad. After international protest in favour of public health rights
(including the collection of 250,000 signatures by Médecins Sans Frontières),
the governments of several developed countries (including The
Netherlands, Germany, France, and later the US) backed the South African
government, and the case was dropped in April of that year.
In 2016, GlaxoSmithKline (the world's sixth largest
pharmaceutical company) announced that it would be dropping its patents
in poor countries so as to allow independent companies to make and sell
versions of its drugs in those areas, thereby widening the public access
to them. GlaxoSmithKline published a list of 50 countries they would no longer hold patents in, affecting one billion people worldwide.
Charitable programs
In
2011 four of the top 20 corporate charitable donations and eight of the
top 30 corporate charitable donations came from pharmaceutical
manufacturers. The bulk of corporate charitable donations (69% as of
2012) comes by way of non-cash charitable donations, the majority of
which again were donations contributed by pharmaceutical companies.
Charitable programs and drug discovery & development efforts by pharmaceutical companies include:
"Merck's Gift", wherein billions of river blindness drugs were donated in Africa
GSK's commitment to give free albendazole tablets to the WHO for, and until, the elimination of lymphatic filariasis worldwide.
In 2006, Novartis
committed US$755 million in corporate citizenship initiatives around
the world, particularly focusing on improving access to medicines in the
developing world through its Access to Medicine projects, including
donations of medicines to patients affected by leprosy, tuberculosis, and malaria; Glivec patient assistance programs; and relief to support major humanitarian organisations with emergency medical needs.
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