Drug Companies Overestimate Cost Of Developing A New Drug By Merely $1.26 Billion
from the and-there-you-go dept
It's one of those numbers that comes up every single time we talk about the pharma industry: the claim that it costs $1.3 billion for pharma companies to develop a new drug. In fact, in our recent discussion on the FDA banning drugs that have been on the market for decades, it didn't take someone long to toss out such a number (they used $1.2 billion, but $1.3 billion is the "standard" these days -- just a few years after it was $800 million). Of course, every time people point this number out, I point to the excellent research by Merrill Goozner who did a massively thorough debunking of the $800 million number seven years ago, showing that the true number was closer to $35 million.And yet, the $800 million number has lived on, boosted by inflation to $1.3 billion.
And it's still bunk. Gerd Leonhard points us to some new research that appears to have dug deeper into the question today, and found (once again) that the $1.3 billion claim is total bunk and the real number is more like $55 million -- based on the same data used by the study used to support the $1.3 billion number. In fact, they point out that it appears the pharma industry and those seeking greater protectionism appear to be overestimating the actual cost of drug development by $1.265 billion.
Now, there are some reasonable quibbles with the lower number as well, but there's a growing body of evidence that the real number is a lot closer to the lower one than the higher one. There are certainly some outliers, but the idea that the average cost to develop a new drug is over a billion dollars, and therefore pharma companies need special extra protection is bunk and certainly shouldn't be cited any more.
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Filed Under: costs, development, drugs, patents
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Whaaa?
Never!
I love free enterprise quite a bit, but at the same time, I've never been without a healthy dose of skepicism whenever a business pleads poverty, but somehow continues to stay in business and make a profit.
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America
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Re: America
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Let's just try something...
Are you really going to claim that the industry spent 65 *TRILLION* dollars getting them there?
Hogwash. Maybe *some* drug was expensive somewhere along the line, but there isn't any possible way this is the typical cost of any drug.
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Re: Let's just try something...
http://www.google.com/publicdata?ds=wb-wdi&met=ny_gdp_mktp_cd&idim=country:USA& amp;dl=en&hl=en&q=united+states+gdp
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I love this part
That $20 box of bagels cost them $348 (invested at 10% growth for 30 years).
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Re: I love this part
One could then claim the cost of securities to be ludicrously high because you aren't using that money to develop and sell pharmaceuticals.
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Math
Mike, have you overestimated their underestimation by 20 million or am I missing something?
Not that this affects the point, overestimating by 1.245 billion is just as ridiculous, just wondering.
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Re: Math
"they point out that it appears the pharma industry and those seeking greater protectionism appear to be overestimating the actual cost of drug development by $1.265 billion"
The reports shows that as some form of average amount.
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Re: Re: Math
Thanks Planespotter.
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Re: Re: Re: Math
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Re: Re: Re: Re: Math
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Whole picture
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Re: Whole picture
The numbers include the cost of failures.
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Re: Re: Whole picture
Why, look at all the 'new' drugs that are worse than the symptoms and diseases that they are supposed alleviate.
It's kinda like marijuana and cancer.
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Management needs paid too!
Research and Development costs : $55 million
Cost for developing new drugs: $1.3 billion
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Re: Management needs paid too!
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Re:
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What budget?
But what I am really interested in is how they might come up with such a number. Sure, a lot of lab work might not lead to specific products, but how much of that are studies showing the drugs don't have the effect we're paying for? I wouldn't mention those if I were them, considering someone might start looking.
There is one glaring omission here though. A large portion of the research that goes into these products still happens in universities and is funded, at least in part, by taxes. If they are including that in the cost, and I wouldn't put it past them, then that would explain the "discrepancy". Of course, that would not make the number right, it would just make it a double deception: the taxpayer twice, once for the research, and once for the product!
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Reference Frames
I quite literally plotted the second derivative of our sales volume, so my boss could show an upward slope. What that upward slope actually meant was "We are getting worse more slowly."
This represented my first lesson in "don't believe management charts, because most managers don't understand WTF they mean!"
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http://www.cbo.gov/doc.cfm?index=7615
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Think of the children!!!!
And because those kids are not spending all that money and not tipping as well and getting their cars detailed every week the folks that serve them the alcohol in bars and wash their cars won't be able to afford the overly priced drugs they need to have a decent life!!
Come on people! it will be a horrific painful death spiral for America if we don't save the drug companies! Bail them out for $2 Billion right away!!!
The horror!
That was sarcasm.... or was it an actual Lobbyist speech?!?!?!
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Re:
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In fact, Warburton herself admitted as such. When called on it, she backtracked and said that her figures only included the "D" part of R&D. Something no one really picked up on:
http://pipeline.corante.com/archives/2011/03/08/that_43_million_rd_figure.php
Probably a more interesting site than the slate article after that came out, one blog had some reader involved in pharm crowdsource their R&D numbers:
http://lifescivc.com/2011/03/choose-your-own-numbers-crowdsourcing-the-cost-to-produce-a -new-drug/
with a couple models putting the figure between 300 million and 1.6 billion. Probably closer to reality.
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Drug over costs...
My doctor gave me an antibiotic (one of the very few) that is effective against Mercer. It costs $1000 for 20 pills. That's 50 bucks a pill.
If it weren't for a government program to subsidise this cost I would have died.
I cannot fathom the reasoning behind charging so much for medicine that is one of the few lines of defense against a major epidemic in this country. And yeah, Mercer is an epidemic...
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Re: Drug over costs...
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Re: Re: Drug over costs...
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Re: Drug over costs...
Still, your point is taken. But it doesn't diminish how much it costs the pharma company to develop a drug like vancomycin that can treat drug-resistant bacterial strains. So the reasoning for charging that much is that it's expensive to make. Not understanding the reasoning for that is like saying you don't know why all cars aren't $250. After all, many people need them to survive...
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Embellish to deceive
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Real Pharmaceuticals Costs
As should be obvious to everyone by now, R&D is only a tiny part of the budget of the drugs firms. Yet people always seem to be surprised when this is pointed out.
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One way to look at it is for J&J. Wanna guess how long it has been since J&J has actually brought a drug to market? (without having to buy another company for their drug) It is over 10 years now. So you could factually state that they average cost of R&D to NDA's J&J can't be calculated because the success rate is zero. I am pretty sure they have spent over $1.2 billion over all those years.
Costs for pharma are not in the development of the drug but the testing (clinical trials) of the drug, because that involves people and the FDA are requiring more and more people be included in the trials.
Tell the truth, pharma wants to determine faster and faster which drug suspects to kill, there is nothing worse than seeing a Phase 3 drug be cancelled when it could have been killed in Phase 1 or 2.
As for letting the govt. bring a drug to market, good luck with that one.
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Re:
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looking at both sides
http://pipeline.corante.com/archives/2011/03/07/the_costs_of_drug_research_beginning_a_rebu ttal.php
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Go read "In The Pipeline"
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Pharma drug development costs
Perhaps sometime you could also expose how much drug development uses taxpayer money?
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Compare it with Tech
"Hey let's look at the cost structure of Candy Crush and from that make assumptions of the whole market"
"We also included King's not-so-succesful Bubble Witch Saga game. Now we have the real cost of making games."
"We even compared with other companies like Supercell and their Clash of clans, Boom beach etc. Now that we have done this we have the real cost of making a game"
ALL WRONG. You have to look at the whole market, including players who aren't playing anymore. Companies like Facebook, Apple, Google, Microsoft & Yahoo are all dependent on acqhires and support an enormous economy of startups whose only value is a potential takeover. 10-person startups that just try it a few years before their parents money runs out.
It's just like that in the pharmaceutical industry. A smaller firm like Pharming has run a loss of 10-55 million per year for >15 years straight. The potential of a takeover by Big Pharma is basically the reason Pharming still exists.
In a market where CHANCE is a big factor we have seen the same model develop twice. Both in pharma and the internet we see that a few massive and highly profitable businesses are the anchor for a high-risk/reward cloud of small firms. Killing the profitability of Big Pharma may not be wise if you're interesting in new developments.
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