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Will Marijuana-Based Pharmaceuticals Make Drugs More Affordable?

By George Budwell – Oct 27, 2014 at 12:21PM

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Marijuana-based pharmaceuticals are becoming a reality. Will these "natural" products come with the added benefit of lower price tags compared to their man-made counterparts?

Drugs that have been deemed "safe and effective" by the likes of the Food and Drug Administration have a major strike against them: their often astronomical price tag. Perhaps it's a sign of the times that the newly approved cancer drugs regularly cost in excess of $100,000 per course of treatment. 

The debate over drug pricing reached fever pitch earlier this year, though, following the launch of Gilead Sciences (GILD 1.87%) and Johnson & Johnson's (JNJ 1.02%) next generation hepatitis C drugs Sovaldi and Olysio, respectively. When prescribed together, a three-month course of treatment of this game-changing therapy reportedly costs around a staggering $154,000, putting tremendous pressure on public and private payers. 

The relaxation of laws prohibiting research into the medical uses of marijuana have spurred new hope in some circles that this naturally occurring plant might help to drastically lower the costs of drugs in general. The idea is simple. Because marijuana is easy and cheap to grow and reportedly has numerous health benefits, this miracle plant could be play a key role in the fight against rising healthcare costs. With that in mind, here is a look at why marijuana-based pharmaceuticals may not be any cheaper than their man-made counterparts at the end of the day.

Developing new drugs is expensive, without exception
While it's true that cannabis in its pure form is relatively inexpensive to manufacture compared to traditional pharmaceuticals, it's important to keep in mind that marijuana-based derivatives indicated for specific disease conditions will require rigorous testing that tends to cost hundreds of millions of dollars to complete. On top of clinical trials, companies have often have to pay huge fees to regulatory agencies to cover the cost of the review process and hire a sales force to market the drug upon approval.

All told, the average cost of bringing a new drug to market now tops a jaw-dropping $5 billion, and marijuana-based products don't appear to have a magic formula for escaping this reality.

Marijuana-based treatments won't be cheap
The industry leader in developing cannabis-based therapies, GW Pharmaceuticals (GWPH), illustrates this point nicely. This British biotech presently spends about $5 million a month in operating costs -- costs that are sure to be baked in to any approved products down the line. Indeed, the annual cost of GW's treatment for spasticity associated with multiple sclerosis, Sativex, runs about $4,800 a year in Canada and more than double that in the U.K. If the company's ongoing late-stage trial in the U.S. can pass muster with the FDA down the road, I expect its pricing to fall in-line with Britain's structure. 

Although this ground-breaking marijuana-derivative won't touch the likes of cancer or hepatitis C therapies in terms of pricing, it is on track to be considerably more expensive than the new generation of obesity treatments hitting the market. In fact, Sativex's monthly cost, per the numbers coming out so far, look to be on par with the cost associated with treating diabetes. In short, the first-group of cannabis-based therapies don't appear to be any cheaper than their synthetic brethren. 

Foolish final thoughts
The potential medical uses of marijuana are only now being explored after decades of prohibition. And early stage studies suggest that this plant might one day give rise to novel therapies for a diversity of conditions, such as diabetes, epilepsy, and even cerebral palsy. Nonetheless, science isn't cheap no matter what the source material. Cannabis therefore may end up making a major impact in the lives of patient suffering from an array of debilitating conditions. But I don't expect this "natural" product to play much of a role in the fight against the ever-rising costs of healthcare.

George Budwell owns shares of Johnson & Johnson. The Motley Fool recommends Gilead Sciences and Johnson & Johnson. The Motley Fool owns shares of Gilead Sciences and Johnson & Johnson. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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