What does it cost to invent a new drug?

A whole lot of money.  Like in the range of billions, say six.  That’s $6,000,000,000.

Matthew Herper has a superb article in this week’s Forbes magazine on the issue.  You can find it online at The Truly Staggering Cost of Inventing New Drugs.

Mr. Herper and a Forbes statistician did some analysis on big pharma costs to develop new meds.  They accumulated the inflation adjusted R&D spending over the last 15 years and the number of new drugs approved by the FDA for 8 large pharmaceutical companies.

Results of that analysis are available on page 2 of the ‘net version available at the link above.

Range of costs by company per approved drug run from a low of $4.0B to high of $11.8B.  The high number is due to the low number of drugs that Astrazeneca got approved in 15 years.

Three companies were in the range of $4B.  Three were around the $8B range.  Two were much higher.

I combined the data for all 8 pharma companies.  Combined, they spent $559.3B to get 96 drugs to the point of FDA approval. That is an inflation adjusted average across the industry of $6.2B per approved drug for the last 15 years.

That is a lot of money. In order for the entire industry to continue R&D, they need to recover those costs through prices paid by customers before the drug goes off patent protection.

This is a major factor in the series of posts I have in mind to write.  Since it takes a while to allocate enough time to cover the ground I’m pondering, I’ll accumulate pieces of the discussion as I go.  Thus, today’s post.

Why US drug prices are so high

I read a long time ago that US consumers pay 50% of the world-wide total for medication as we consume 5% of the total pills. That means the rest of the world pays 50% for 95% of the meds. 

Is that a correct stat?  I don’t know.  I’ve tried briefly to support it, but haven’t allocated enough time to the search to find out.

The implication, if those ratios are correct and several other implied assumptions are good, is that drug prices in the US are in the range of 19 times higher than outside the country (50% for 5% compared to 50% for 95%).

Relevance to the discussion of fair value of donated meds

This is pertinent to the ongoing discussion of how to value GIK meds because there is dramatic difference in the price of meds inside the US and elsewhere in the world.  That in turn has a huge impact on determining the fair value of donated meds. Particularly in light of the concept of principal market.

There is also a huge gap between generic and branded prices. 

More discussion to follow.

2 Responses to What does it cost to invent a new drug?

  1. empoprises says:

    Looking forward to the series as it develops.

  2. […] looks to me like the actual costs are between $4 billion and $11 billion to develop one new drug and get it to market. Those big pharma companies may be out five or ten […]

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