[Ip-health] Does it really cost $2.6 billion to develop a new drug?

Elizabeth Rajasingh elizabeth.rajasingh at keionline.org
Tue Nov 18 10:58:01 PST 2014


Does it really cost $2.6 billion to develop a new drug?

By Jason Millman November 18 at 1:34 PM

The never-ending debate about what drugs should cost is in part driven by
the fact that no one seems to know what it actually costs to develop one.
And now we have a new analysis from an influential think tank for what it
believes to be the cost of getting a drug approved: $2.6 billion.

That's the latest projection from the Tufts Center for the Study of Drug
Development, a research group partially funded by drugmakers. The new
figure is more than three times higher than the group's 2001 estimate of
$802 million.

The group estimates the average drug discovery and development process
costs $1.4 billion. Its estimate includes another $1.2 billion in foregone
returns investors would have otherwise seen while the drug was under
development. The group estimates that drugmakers on average face another
$312 million in research and development costs after a drug gets approved,
which could bring the total average cost of development to $2.9 billion.

The prices of many popular prescription drugs have risen sharply over the
last decade, leaving consumers wondering why the cost of medicine is so
high — and whether pharmaceutical companies need to charge so much to cover
the cost of developing drugs, or if they're merely padding their profits.
With patents on blockbuster drugs expiring over the past few years, the
pharmaceutical industry is under pressure to somehow make up for those

The Tufts center researchers say the cost of developing a drug, when
adjusted for inflation, has increased 145 percent overthe past decade.
Their findings — which are drawing scrutiny from consumer advocates and
academics — attribute the rising costs to higher failure rates for drugs
and higher R&D costs. Drugmakers have also been tackling more complex
diseases over the past decade, and they must fund research proving the cost
effectiveness of new drugs, according to the report.

An overwhelming number of drugs that enter clinical trials don't actually
get approved by the FDA, so drugmakers try to recover those costs when they
have a successful product. Joseph DiMasi, the lead author of the CSDD
study, said the group's estimate takes that into account.

“Drug development remains a costly undertaking despite ongoing efforts
across the full spectrum of pharmaceutical and biotech companies to rein in
growing R&D costs,” DiMasi said in a statement.

The study itself won't be released until 2015, the researchers said. So
far, the Tufts center has only released a slide presentation, a press
release and a backgrounder on the study methodology.

Consumer advocates say that estimates from the Tufts research center are
often inflated to justify higher drug prices — and the lack of detail
released so far on this latest study makes it hard to assess the claims.
James Love, director of the non-profit Knowledge Ecology International,
said critical information is missing from the analysis, like how many
patients were in the drug trials, or how much money was claimed to have
been spent on each patient.

"First impression: the study, which is part of a public relations campaign
by the drug companies to justify high prices, is long on propaganda, and
short of details," wrote Love in a blog post.

Doctors Without Borders was harsher in its assessment. "[I]f you believe
[the Tufts analysis], you probably also believe the earth is flat," said
policy director Rohit Malpani in a statement.

Other estimates vary on how much it costs to develop a drug. In 2006,
Federal Trade Commission researchers tried to replicate aTufts study that
pegged the cost of developing a drug at $802 million. The FTC researchers'
findings, published in the policy journal Health Affairs, estimated that
the average cost at the time was a little higher, at $868 million — but
they found there was considerable variation based on drugmaker and the type
of drug. For example, their analysis found that the average cost of drug
development was $521 million for one large manufacturer, while it was $2.1
billion for another.

Merrill Goozner, in his book "The $800 Million Pill: The Truth Behind the
Cost of New Drugs," writes that the actual development cost was about
one-fifth of the last Tufts estimate, contending that most of the drug
development relies on taxpayer-funded research. Meanwhile, a Forbes
analysis last year of 100 pharmaceutical companies pegged the cost of
developing a drug at $5 billion.

And so the debate over how much it costs to develop a drug — and what it
should cost — goes on.

Elizabeth Rajasingh
Perls Fellow, Knowledge Ecology International
1621 Connecticut Ave. NW, Suite 500
Washington, DC 20009
*elizabeth.rajasingh at keionline.org <elizabeth.rajasingh at keionline.org>* |

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