Why are some medicines so much more expensive than others?

Some of the drugs used to treat narcolepsy are very inexpensive and there are generally no difficulties in patients being prescribed those medications. Depending on the dose taken and the particular brand used, the typical cost to the NHS of a 30-day supply of modafinil or methylphenidate, for instance, is between £6 and £32. For sodium oxybate (Xyrem®), on the other hand, the cost is from £540 to £1080, and the dose taken by most patients means that the figure is usually closer to the top end of that range.

So what is the reason for this 50- to 100-fold difference in cost?

The answer lies in the economics of the pharmaceutical drug development process. The development of new drugs is a very risky business. The overwhelming majority of new drugs that are invented never make it to general use, often despite many tens or hundreds of millions of pounds being spent on clinical trials. Most of the new drugs that go through those trials are dropped, either because they prove to be ineffective (or no more effective than existing treatments) or because they have adverse effects that outweigh their benefits.

This means that pharmaceutical companies invest huge amounts of money in potential new products that unfortunately fail to reach the market and so do not generate any profits for the company and its shareholders. It has been estimated that only one in 5,000 drug candidates makes it all the way to marketing approval. The process can take more than ten years to complete and is now said to cost an average of more than one billion pounds.

When a new drug does make it to the market, its developer has to recoup the cost of developing the drug (as well as the costs expended on all those drug candidates that got part-way through the development process before being dropped). This means inevitably that the company has to charge a high price for the drug.

In most cases, while new drugs are immensely difficult to develop and bring to market, once that has been done they are also usually quite easy to copy. For that reason, the research-based pharmaceutical industry goes to great lengths to ensure that all new drugs are protected by patents. That enables them to prevent competitors producing competing versions of the drug, and so ensures that the drug continues to command a high price, at least for a time.

Patents, though, have a fixed lifetime, and once they expire the door is opened to competitors. Companies that specialise in producing copies of innovative new drugs often do so immediately after the patents or other protection have come to an end. These are called “generic” drugs, and they are often sold at vastly lower prices than the original product. Usually, the competition in the marketplace means that the original manufacturer also has to reduce its prices, often very substantially. This in turn means that original manufacturer has an even greater incentive to charge very high prices for as long as it has a monopoly.

For drugs intended for the treatment of relatively rare conditions like narcolepsy, there are further complications. The cost of developing such a drug is substantially the same as the cost of developing a treatment for any other condition, but the potential return on that investment is limited by the relatively small size of the market. This unfortunately means that the unit cost of new drugs for rare conditions tends to be higher than the cost of drugs that are of benefit to larger patient groups (and which therefore result in higher levels of sales). For this reason, the regulatory authorities offer some incentives to pharmaceutical companies to develop new drugs to treat those conditions. One measure that is used is to grant a potential treatment for a rare condition what is called “orphan drug” status. When that is done, the developer of the drug is given an enhanced period of market exclusivity, ie an increased period in which there is no competition. Unfortunately, that does mean that the drug generally remains expensive for a longer period.

As a general rule, the length of time for which an innovative drug company can maintain its monopoly in a new drug is around 15 years (but sometimes rather more, sometimes rather less). During that time, any new drug is likely to be expensive, and that is particularly true of drugs intended for the treatment of rare diseases like narcolepsy. At the end of that period, however, other companies are able to produce competing “generic” versions of the drug, and as a result the price usually falls dramatically. The point at which that fall in price is to be expected has not yet been reached for sodium oxybate or for the recently introduced drug, pitolisant, and those medications therefore remain very expensive. Generic versions of drugs like modafinil and methylphenidate have been available for many years, and the costs of those drugs are much lower as a result.