What Is a Drug?

A drug is a substance used to prevent or cure a disease or ailment or to alleviate its symptoms. In the U.S., some drugs are available over-the-counter while others can be purchased only with a doctor's prescription. Drugs can be taken orally, via a skin patch, by injection, or via an inhaler, to name the most common methods.

The pharmaceutical industry, which is concerned with the development and marketing of drugs, is a key component of the health sector, which is the most profitable industry in the U.S. economy at an estimated $24.4 billion in revenues in 2018. Prescription drugs are considered zero-rated goods.

Understanding Drugs

Development of new and improved drugs, or pharmaceuticals, is a complex and costly business in the U.S. Some of the biggest American corporations, such as Johnson & Johnson, Pfizer, Merck, and Eli Lilly, are in in the business of researching, testing, manufacturing and marketing new drugs.

In addition, biotechnology has evolved in recent years as a major new branch of the drug business. Biotechnology companies concentrate on research and development of new cures based on genetic manipulation. The big players in the field include Amgen, Gilead Sciences, and Celgene Corp.

In the United States, prescription drugs must be approved by the Food and Drug Administration (FDA). The agency's Center for Drug Evaluation and Research (CDER) acts as a consumer watchdog.

How Drugs Get to Market

On average, it takes about 10 years and costs about $2.6 billion for a new drug to make it from its initial discovery to a doctor's office, according to an industry group. The process has five main phases:

  • Development and discovery
  • Preclinical research
  • Clinical research
  • FDA review
  • Post-market safety monitoring

In the development and discovery phase, researchers explore new possibilities. They may investigate unexpected effects of existing drugs, test new molecular compounds, or create new technologies that allow drugs to work differently in the body.

In the preclinical research phase, when a potential new drug is identified, researchers determine the correct dosages and methods of administration, side effects, interactions with other drugs, and effectiveness. They also study the drug’s absorption, metabolization, and excretion characteristics.

Fast Fact

The estimated cost of getting a new drug from the research lab to the doctor's office is $2.6 billion.

In the clinical research phase, the company first tests the substance in the lab, or "in vitro," and sometimes on animals, or "in vivo." Depending on the outcome, the drug may then be tested on human subjects in clinical trials to determine whether it is safe and effective.

A drug that passes that hurdle is submitted to the CDER for review. The agency employs pharmacologists, chemists, statisticians, physicians, and other scientists who conduct an independent and unbiased review of the drug and the documentation submitted with it. That process typically takes six to 10 months to complete.

The drug company will be allowed to sell the drug if the CDER determines that the drug’s benefits outweigh its risks. It is then responsible for monitoring reports on the drug's effectiveness and unanticipated side effects.

Key Takeaways

  • Drug development and marketing is a key component of the health sector, which is the most profitable U.S. industry at $24.4 billion in revenues in 2018.
  • A new drug can be patented for 20 years after its discovery or invention.
  • After 20 years, generic equivalents can be sold at lower prices.

Name Brand vs. Generic Drugs

Drugs sold in the U.S. may be name-brand or generic. A name-brand drug can be patented for 20 years after its discovery or invention. Once the patent expires, other manufacturers can produce and market generic equivalents of that drug.

Generic equivalents are increasingly prescribed as they become available in the U.S. because of their relatively low cost. Generics are required to have the same medicinal ingredients, and therefore the same therapeutic effects, to receive FDA approval for sale as substitutes.

Drug Prices

The price of prescription drugs is a source of great financial stress for many Americans, and therefore it has become one of the biggest political issues of the era. Health insurance prevents many Americans from bearing the full brunt of retail drug prices, though the coverage varies widely. In any case, drug costs are a major factor in the increase in health insurance premiums.

The most expensive prescription drugs in 2019, according to goodrx.com, a healthcare website, include Actimmune, an osteoporosis treatment, at $52,322 per month; Myalept, a treatment for lipodystrophy, at $46,328 per month; and Daraprim, an anti-parasitic, at $45,000 per month.