There are typically three important phases of a medicine’s life cycle. The first is research and development, where industry puts in hundreds of billions of pounds into developing and testing new medicines.
Once a medicine is licensed, a company has exclusive rights to sell that medicine to the NHS for a period of time at a price which has been approved by NICE.
The medicine is scrutinised for both the benefit it brings to patients and the its cost effectiveness for the NHS by a body called the National Institute of Health and Care Excellence (NICE).
The final stage is where a medicine comes off patent and can be copied and sold cheaply for ever. At this point, due to extra competition in the market, the price is likely to drop significantly.
This is why major breakthrough medicines, like statins, now cost less than a cup of coffee, or why some cancer drugs cost just a few pounds per day.
When pricing a medicine, a company will take into account its research and development, the need to earn profits and create further finance which can be ploughed back in to future research for new medicines and vaccines.
This will include recouping the costs of the many medicines and vaccines which are likely to have failed along the development pathway.
Globally, pharmaceutical companies put around £140 billion a year in to researching and developing new medicines.