Approval processes

There are three main markets for pharmaceuticals, the US, Europe and Japan. Each has its own rules on approvals, but they follow roughly the same principals and have similar requirements.

The most important part of the approvals process is producing data from clinical trials that shows that a drug is safe and effective. This is expensive, so the less profitable generic drugs are approved in the basis of more limited tests that shows them to be clinically equivalent to the already approved drug they are reproducing.

Regulators also give pharmaceuticals companies incentives through marketing exclusivity, a promise to not approve competitors. This is sometimes given to treatments for rare diseases that are designated orphan drugs. A short period of exclusivity is also sometimes given to induce a manufacturer to take the risk of litigation that comes from producing the first generic version of a particular drug.

Apart from the simple question of approval, regulators also approve a drug for specific “labelling”: how a drug may be marketed. Regulators do not simply approve a drug, they approve it to be marketed for specific conditions, and even for specific groups of patients. Although doctors are allowed to prescribe a drug “off-label”, the pharmas are not allowed to promote off-label use, so it is usually too rare to have much impact on sales. Labelling may also include safety warnings. In short, labelling matters.

The progress of a drug through the three stage clinical trial process provides indicators of:

  • how likely it is to be approved,
  • whether any adverse restrictions on labelling are likely,
  • how effective it is (which has an impact on its likely market share.