By Janet Fang
Posting in Science
A recent paper flamed tons of debate by saying it costs around $40 million to develop a new drug, or about a billion dollars less than what the reigning estimate is. Industry disagrees. Here's what's happening.
About a month ago, a paper published in BioSocieties sought to demythologize the high costs of pharmaceutical research. In particular, a widely-cited 2003 study estimated that it takes $802 million to bring a new drug to market.
The authors of the new paper, however, argue that research and development costs are actually only $43 million per new drug.
The industry disagrees. A Slate piece agrees. Pharma commenters are saying that if enough people believe something idiotic, those beliefs can have consequences. The discussion rages.
On the $802 million figure from the 2003 study from Tufts University:
- R&D costs of 68 new drugs were obtained from a survey of 10 participating drug companies.
- The average out-of-pocket cost to bring every new drug to market is $802 million (that’s year 2000 dollars).
- This has been updated by 64% to $1.32 billion in 2006.
Challenging that study, some rhetoric and conclusions by Donald Light and Rebecca Warburton from the recent paper in the London School of Economics journal BioSocieties:
- R&D costs companies a median of $43.4 million per new drug; company supported analysts conclude they are over 18 times larger, or $802 million.
- The high prices of new medicines, the discounts offered to poorer countries and the new, overpriced policy tools are built on the mythic costs of R&D and their mythic promise to save millions more lives than they can.
- The self-perpetuating high-cost myth also produces wasteful and inefficient corporate research structures and compromises science.
- The mythic costs of R&D are but one part of a larger, dysfunctional system that supports a wealthy, high-tech industry, gives us mostly new medicines with few or no advantages (and serious adverse reactions that have become a leading cause of hospitalization and death), and then persuades doctors that we need these new medicines.
According to a highly-commented article in Slate, the authors “correct for all these flaws” in the Tufts study: "So the drug companies' $1.32 billion estimate was off, according to Light and Warburton, by only $1.265 billion. Let's call it a rounding error."
In short, every one of Light and Warbuton’s adjustments are invalid. Furthermore, two peer-reviewed papers by current and former FTC economists, also not cited by Light and Warburton, validate our work using other methods and public data. They find that R&D costs are likely as high or higher than our estimates.
2. In the Pipeline has been following this extensively. Some extracted bits:
Fine, then – I'm in agreement, on general principles, with Light and Warburton when they say that the Tufts study estimates are hard to check and likely too high. But here's where we part company. Not content to make this point, the authors turn around and attempt to replace one shaky number with another. The latter part of their paper, to me, is one one attempt after another to push their own estimate of drug R&D costs into a world of fantasy. Their claim is that the median R&D cost for a new drug is about $43 million. This figure is wrong.
And this: "This is a viewpoint that can only be held by someone who has never tried to discover a drug, or never held a serious conversation with anyone who has."
3. For some more estimates (and maybe make some of your own), try this site: “Choose your Own Numbers: Crowdsourcing the Cost-to-Produce a new Drug?”
Image by Michael Flick via Flickr
Mar 16, 2011
The $40+ million number just isn't credible. 10 years ago, the last time I saw the numbers, it cost around $2 million per year to support a front line researcher. This included his direct expenses, salary + lab + supplies, the cost of supporting him with analytical and other testing services, synthesis cost including scale-up, computer support, management, overhead etc. No way you could develop a new drug with 20 man years of effort. I'm guessing pharma research targets a specific disease. They will have multiple cndidates perhaps one, perhaps no candidates wiill work. I don't know if it will cost 1 billion but it sure is more than $40 million. The world would be drowning in new drugs if that were accurate.
I was speaking specifically about the weekend meetings at the White House with reps from big pharma where President Obama negotiated a deal that was supposed to save taxpayers over $10 billion over a 10 year period on the purchase of many common medications. The deal was President Obama?s one major foray into the health care fray. Pelosi and Reed promptly dropped it from the bill and the topic never came up again. As much as it may break your heart, Bush and the Republicans had nothing to do with this incident. The incident you are speaking of, while probably valid as a stand-alone discussion, has no relevance to my comment.
And they probably forgot to include in the cost all these fines(hundred millions of $) these companies have to pay for wrong doing!
HI, #1, Don't go blaming this all on the Democrats. When George W. Bush and the Republican Congress passed Medicare Part D that provided the prescription drug benefit Billy Tauzin (R-LA), a Congressman at the time but now a drug company lobbyist, introduced the amendment not allowing Medicare to negotiate with drug companies about price. Since then the lobbyists have managed to convince enough Democrats to prevent that from being changed. It's hard for me to believe that there isn't enough outrage about that among the general populace to get it changed but there it is.
One thing to consider, is that Big Pharma doesn't develop that many new drugs themselves: They buy out startups which have promising developments, and the venture capitalists and bond holders take it in the neck for all the startups which fail to produce a product which can go to market. Maybe, just maybe, if you count the money spent by failed startups in the average, you might be able to approach the $802,000,000 figure, but the folks who are selling the success didn't spend all that money.
I think the real costs of development is between $43 million and $803 million depending on the drug being developed. The incentive to pad the costs probably comes from the amount of time needed to test the new drug for safety. A new drug is patented before the clinical tests and clinical tests can take years which reduces the amount of time left on the patent before the drug can be sold as a generic. Another factor is the target population. For aches and pains, the target is huge, for diseases that effect a small group of less than 10000 then the target is small. The sale of a drug targeted for a small population will not be cheap because of development costs and clinical tests. What people should be thinking about is what are the possible side effects and the impact on the quality of life. Is it worth spending thousands of dollars for a drug treatment that gives an average of less than a year for additional life? A lot of bankruptcies happen because of catastrophic illness. This effects how insurance companies deal with expensive treatments as well.
So, is the apparently inflated cost $802 (m) million or (b) billion? I see both figures in the copy. A little editing might be helpful.
Wouldnt it be great if the drug companies published a breakdown with considerable detail of specifics in their development costs for the top 10 of each of their new drugs for the last 5-10 years. I wonder how much hair pulling and long nights they would spend trying to exaggerate and spin their numbers. Whatever the numbers its foolish to believe these companies would not inflate the costs when its to their profit and advantage to do so. I ask, if costs are so high, where all the profits they enjoy are coming from??
If anyone believes anything any drug company says, well, they need to take a pill. However, beware of the side-effects.
During the health care negotiations Obama negotiated with the drug companies for a $10 billion dollars reduction in drug costs over a 5 year period. Did anyone ever wonder where the money for that cut came from? Here it is. FYI. The taxpayers never did get that money. Pelosi and Reed cut the negotiated changes from the final bill. I guess we know who runs DC.