By Samuel Taube
Transcript:
Samuel Taube: Joining us again by phone is Marc Lichtenfeld, the Chief Income Strategist of The Oxford Club and the head of Lightning Trend Trader, Tactical Trader Alert, Chairman’s Circle Breakout Alert and The Oxford Income Letter. Marc, thanks for joining us again.
Marc Lichtenfeld: My pleasure, thanks for having me.
ST: Today we are talking about the high and ever-rising cost of drugs, a topic that’s been in the news a lot.
So I know that this is a very broad question I’m going to start with here, but what are some of the factors that contribute to the high cost of drugs, particularly brand-name drugs?
ML: I think a lot of people don’t quite appreciate how costly it is to create these drugs because they just hear the expensive price of the drug and maybe the margins on that particular drug.
But to get to the point where a drug is approved by the FDA costs hundreds of millions of dollars, typically. The average drug costs a billion dollars from the time it’s in a test tube to the time it’s approved by the FDA in roughly eight to 10 years.
Also, you have to consider all of the drugs that don’t make it. Because if a company does some drug discovery – it goes into clinical trials and it’s spending millions of dollars – and then the drug doesn’t work, or it’s proven not to be safe, or it’s rejected by the FDA for whatever reason, that’s all money that the company has spent as well.
So when a drug does get approved and does make it to market, not only does the company need to make that drug profitable, but it also tries to recoup the costs of all the failed trials.
Now, just to give you an example of how difficult it is: From the time a drug is in a test tube – so before it’s in human trials – to the time it gets to the FDA and is approved, only one in 1,000 of those drugs makes it all the way to approval. So it’s a very costly business. That’s one of the main reasons why drugs are so expensive.
ST: I see. I had no idea the ratio was that low – one in 1,000. That’s something. So then how are generic drugs developed, given the extremely high barriers of entry that you just described to creating new drugs?
How are generics developed, and why are they cheaper than brand-name drugs?
ML: So the reason they’re cheaper is because the generic drug company doesn’t have to go through all that expense – all that throwing stuff at the wall and seeing what sticks and seeing if the drugs are safe and effective.
Basically, once a drug is off patent – the brand-name drug goes off patent – all a generic drug company has to do is copy it. It can just break down the formula and make it itself. So it’s not paying all those costs for developing the drug and …read more
Source:: Investment You
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