Drug Development Cost: Does the $1 Billion Pill Actually Cost $50 Million?

While surveys find that the public generally holds pharmaceutical manufacturers in low esteem--trusting them about as much as the oil and tobacco industries--Justmeans' Global 1000 CSR rankings for 2009 seem to paint a different picture: Merck leads all companies and industries with its #1 CSR rating, Novartis is just below it at #3, GlaxoSmithKline and Astrazeneca are a few rungs down the ladder at #10 and #13 respectively.

While the Global 1000 rankings are based on 200 criteria, the public's lack of trust may have just received a prescription-strength boost in the form of a new paper in the publication BioSocieties, published by the London School of Economics. This paper takes an axe to one of the hallowed pillars supporting freakishly high drug costs: Namely the cost of developing new drugs. (See the link to the full text of the paper below.)

Pharma has long claimed that the cost to bring a new drug to market is $800 million. The only source for this figure, however, was a single paper published many years ago that used unverifiable, confidential data from two dozen unnamed manufacturers to reach their conclusion. This new paper has done it's best to recreate the analysis using what appear to be more reliable assumptions and calculations. Though hampered by pharma's refusal to share realistic figures on R&D, the authors of this new paper calculate that the real cost of bringing a new drug to market is actually closer to between $44 and about $60 million.

Why the huge difference? Among the troubles with the older, pharma-friendly figure is that it over-estimated the costs of required trials, in some cases doubling the average number of participants used in studies, and assuming they are much longer than they actually are. And there are a host of other accounting 'tricks' that appear to have been used to reach the inflated and poetically well-rounded figure of nearly $1 billion.

Why should we believe this new figure any more than we should believe the older figure? The authors rightly point out the windfall profits that pharmaceutical manufacturers harvest, which may support the contention that the R&D costs per drug that they are recouping are only about 10% what they are claimed. Then there's the unwillingness of any pharmaceutical manufacturer to come clean on what they are really spending on R&D. They claim it's a trade secret, but why not release real data from some product that has lost patent? Total lack of transparency breeds distrust.

A final bitter garnish to these new findings: Most of the major pharmaceutical companies are becoming glorified marketing, manufacturing and distribution machines. Rather than pursue the costly, creative and difficult science of finding new cures for human disease, they are increasingly fearing their pipeline by purchasing discoveries made by smaller start up companies.

Click here to download a copy of the paper, "Demythologizing the high cost of pharmaceutical research."

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