by José Luis Cárdenas Tomažič

Adapted from the Spanish column originally published in El Economista on July 28th, 2022 (El ciclo de vida de los medicamentos: Entenderlo es maximizar el acceso)

In every country around the world, there is strong pressure to increase access to medicines, both for those considered innovative and for generics or biosimilars.

According to the international consultancy IQVIA, total spending on medicines (hospital and retail), as of 2020, represents on average 15% (range 9% to 20%) of total health expenditure across 11 selected countries, which together account for just over 50% of global spending (USD 618 billion as of 2020).

Within this group of countries—which includes Germany, Brazil, the United States, France, Japan, the United Kingdom, among others—total pharmaceutical spending as a percentage of total health expenditure grew during the 1990s and subsequently stabilized over the past 20 years, even declining slightly in some cases.

Over the last 25 years, demand in the countries analyzed has shifted from innovative medicines protected by patents, which later expired, toward generic drugs and biosimilars that represent interchangeable alternatives.

This trend, which has positively impacted prices by lowering them, has made it possible to offset the entry of new innovative medicines—generally with high therapeutic value and high prices—without increasing total pharmaceutical spending as a share of total health expenditure. This is the general trend, although it may vary when specific therapeutic areas are examined, such as oncology.

It all starts with a new molecule

For this reason, it is important to understand and incorporate into public health policies the so-called lifecycle of medicines. What does this entail? The cycle begins with a new molecule or active ingredient, resulting from a long and extremely costly research and development (R&D) process. This process is also characterized by the fact that a significant number of molecules never obtain approval from regulatory authorities—that is, they fail to become medicines.

The cost of R&D per new molecule was estimated in a 2021 report by the U.S. Congressional Budget Office to range between USD 1 billion and USD 2 billion.

This includes preclinical and clinical research costs, as well as the failure rate of other molecules. It should be noted that less than 12% of molecules entering the clinical phase—when they are tested in humans—ultimately receive approval as medicines. The average duration of the R&D phase can exceed a decade and aims to demonstrate that the new molecule—and future medicine—is safe, of high quality, and effective for treating a disease.

Inventions arising from this R&D process—whether the molecule itself, procedures, uses, or others—are protected by patents or other mechanisms designed to prevent replication and commercialization by third parties without authorization. Naturally, this seeks to incentivize R&D by ensuring that others cannot appropriate the economic benefits derived from marketing a new medicine, if approved by regulatory authorities such as the U.S. FDA and the European Medicines Agency (EMA), before being submitted to agencies in other countries.

As a result, the new medicine—the innovator—will face limited competition, except from other therapies used alternatively for the same disease.

When the patent expires

Once patents or other protection mechanisms expire, a new phase of the lifecycle begins, allowing the medicine to be legitimately replicated by third parties through the development of generic drugs (for chemical products) or biosimilars (for biological products). These alternatives do not require investment in studies demonstrating the safety and efficacy of the medicine itself—this has already been done for the innovator—but rather in studies that demonstrate equivalent or similar behavior.

These are typically bioequivalence studies for chemical medicines or similarity studies for biologics.

Development costs for generics are substantially lower than for biosimilars.

According to McKinsey, biosimilar development is estimated at between USD 100 million and USD 300 million per product. This explains why, shortly after patent expiration, many generic alternatives typically enter the market, whereas in the case of biosimilars, only a limited number of pharmaceutical companies are able to develop them.

Once on the market, generics and biosimilars, through competition, drive down the price of the innovator medicine, enabling broader access for the population. It is worth noting that these generics or biosimilars not only compete among themselves but also with new medicines entering the market for the same disease—often more effective, safer, or otherwise differentiated—thus restarting their lifecycle.

All these numerous and complex aspects of the medicine lifecycle are in tension. On the one hand, they are linked to incentivizing R&D for new therapeutic alternatives for various diseases; on the other, to fostering competition, lowering prices, and increasing access for patients.

These factors must be considered when designing and implementing public policies aimed at ensuring better treatments for patients while avoiding excessive strain on health systems. Achieving this is a delicate, challenging, and ongoing balancing exercise.