4 ms·

I must take issue with the "$2.6 billion to create a new drug" statement. This is an extremely controversial figure within the pharmacoeconomic literature. It

by Apfel 7y ago

I must take issue with the "$2.6 billion to create a new drug" statement. This is an extremely controversial figure within the pharmacoeconomic literature. It comes from a publication by the Tufts centre for drug development, who are heavily pharma-funded, and it is repeated verbatim by those with vested interests in the pharma industry. More on this here: https://www.washingtonpost.com/news/wonk/wp/2014/11/18/does-it-really-cost-2-6-billion-to-develop-a-new-drug/?utm_term=.d52e7cdc88e9 https://www.washingtonpost.com/news/wonk/wp/2014/11/18/does-...

maxxxxx 7y ago
The medical area is full of self serving stories that are used to justify super high prices but almost always aren't backed up by hard numbers.
mft_ 7y ago
As you say, it's a controversial --and complicated-- figure to determine. The problem is that there's a big range, which mostly reflects different routes of drug discovery. To take two contrasting examples: 1. A target and potential molecule are discovered and developed in an academic lab, following which a small lean biotech is 'spun out' to develop the molecule further. This biotech accesses funding, and spends an amount of money --usually in the low hundred-millions, but sometimes less-- running the studies and collecting the data necessary to approach approval. With luck and a following wind, they succeed, and their overall cost is low for the industry. (See the lower end of the table in [1]). If they fail, the biotech sinks without a trace. 2. A large pharmaceutical company need to continue developing new drugs to maintain its existence. It has a drug discovery operation or two, trying to find new targets and develop new drugs for them. There's significant attrition of these molecules here. Any promising molecules are taken into early-phase trials, where further significant attrition of these molecules takes place. Finally, if those studies are successful, the molecule heads to expensive phase III trials. Here, it's worth noting that the big players in pharma will have a combined R&D budget (encompassing all that we've mentioned here, plus some more) of multiple billions per year. So for small single-molecule biotechs... Firstly the low end of the estimated development cost range ignores a lot of the discovery costs as they were borne by the academic lab. Secondly, the low estimates don't account for failure - as failed biotechs wouldn't be included in the estimates. In contrast, the estimates for big Pharma do include their discovery costs, and can (in a decent analysis) also include the huge cost of multiple drug failures along the way to getting one drug approved. Have a look at the linked analysis [1]. Rather than trying to estimate the cost of a single drug, it looks at the overall money spent on R&D versus new drug approvals in that time. (The methodology isn't perfect; but overall, it's probably a better picture of the cost of drug development across the board than a single-molecule estimate.) [1] https://www.forbes.com/sites/matthewherper/2013/08/11/the-cost-of-inventing-a-new-drug-98-companies-ranked/#373ff0a42f08 https://www.forbes.com/sites/matthewherper/2013/08/11/the-co...
- pbhjpbhj 7y ago
  Are drug manufacturers still spending more on marketing than on drug production? Don't they spend a good deal on simply trying to make a drug to work around someone else's IP, rather than making drugs where there is a new benefit -- that might account for most of the R&D for all I can tell, it doesn't appear to be included in this analysis?
  - jandrewrogers 7y ago
    Drugs, like software, have very low production costs. The vast majority of the cost is in development. It is expected for marketing costs to exceed production costs while spending ordinary amounts on marketing as a consequence. Software companies spend far more on marketing than production costs for similar reasons. Marketing is essential for recovering development costs for drugs the same as it is for software. If marketing did not pay for itself and contribute positive revenue, nobody would do it. Drug companies have a finite amount of time to recover their very high development costs.
    - monocasa 7y ago
      He misspoke when he said production. He meant R&D. And yes, bug pharma spends more on marketing than R&D. https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/ https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p...
      - pbhjpbhj 7y ago
        You're right, I didn't mean "manufacture". Production of a good to my understanding includes inter alia R&D and manufacture. All the steps from starting with nothing, to having goods to provide.
  - aaavl2821 7y ago
    Big pharma companies spend a lot on marketing, often more than on r&d, but most drugs come from small companies with no marketing budget. These companies develop drugs, and partner with pharma to commercialize the drugs, or pharma buys them outright HBM did an analysis of novel FDA approved drugs from 2008-2018 which showed over 60% of FDA approved drugs were originally developed by small companies, and just 12% iirc by big pharma And most drug development efforts these days focus on medicines that can be truly impactful to patients. There is a correlation between clinical value and price, and many markets are winner take most, and winners are chosen by prescribers and payers based on their benefits to patients One data point to illustrate the industry's increased focus on innovation is that historically, nearly all drug development programs were small molecules and biologics -- decades-old tech. Of the companies that IPOd in the last 5 quarters, there are more gene and cell therapy programs than small molecule
dekhn 7y ago
Those numbers aren't completely off. I work in pharma and am quite familiar with the R&D budgets. Everything is amortized in large pharma (across projects, over time, over shared supporting facilities). It factors in the cost of failures, the failure rate is very high, and this is a regulated/validated industry so just making admin changes to code requires extensive process.
aaavl2821 7y ago
I agree that it is controversial but I think that study is better than many of the others. None of the studies on this issue are without controversy from what I've seen Part of the reason I made this tool is so people could input their own assumptions rather than just relying on somewhat opaque studies. I personally was surprised to see how big the effect of discount rate was -- it made me reconsider my position on whether more drug dev should be publicly funded. I think the effect of cost of capital on drug price is under-discussed in some of these studies

by Apfel 7y ago

maxxxxx 7y ago

The medical area is full of self serving stories that are used to justify super high prices but almost always aren't backed up by hard numbers.

mft_ 7y ago

As you say, it's a controversial --and complicated-- figure to determine. The problem is that there's a big range, which mostly reflects different routes of drug discovery. To take two contrasting examples: 1. A target and potential molecule are discovered and developed in an academic lab, following which a small lean biotech is 'spun out' to develop the molecule further. This biotech accesses funding, and spends an amount of money --usually in the low hundred-millions, but sometimes less-- running the studies and collecting the data necessary to approach approval. With luck and a following wind, they succeed, and their overall cost is low for the industry. (See the lower end of the table in [1]). If they fail, the biotech sinks without a trace. 2. A large pharmaceutical company need to continue developing new drugs to maintain its existence. It has a drug discovery operation or two, trying to find new targets and develop new drugs for them. There's significant attrition of these molecules here. Any promising molecules are taken into early-phase trials, where further significant attrition of these molecules takes place. Finally, if those studies are successful, the molecule heads to expensive phase III trials. Here, it's worth noting that the big players in pharma will have a combined R&D budget (encompassing all that we've mentioned here, plus some more) of multiple billions per year. So for small single-molecule biotechs... Firstly the low end of the estimated development cost range ignores a lot of the discovery costs as they were borne by the academic lab. Secondly, the low estimates don't account for failure - as failed biotechs wouldn't be included in the estimates. In contrast, the estimates for big Pharma do include their discovery costs, and can (in a decent analysis) also include the huge cost of multiple drug failures along the way to getting one drug approved. Have a look at the linked analysis [1]. Rather than trying to estimate the cost of a single drug, it looks at the overall money spent on R&D versus new drug approvals in that time. (The methodology isn't perfect; but overall, it's probably a better picture of the cost of drug development across the board than a single-molecule estimate.) [1] https://www.forbes.com/sites/matthewherper/2013/08/11/the-cost-of-inventing-a-new-drug-98-companies-ranked/#373ff0a42f08 https://www.forbes.com/sites/matthewherper/2013/08/11/the-co...

pbhjpbhj 7y ago
Are drug manufacturers still spending more on marketing than on drug production? Don't they spend a good deal on simply trying to make a drug to work around someone else's IP, rather than making drugs where there is a new benefit -- that might account for most of the R&D for all I can tell, it doesn't appear to be included in this analysis?
- jandrewrogers 7y ago
  Drugs, like software, have very low production costs. The vast majority of the cost is in development. It is expected for marketing costs to exceed production costs while spending ordinary amounts on marketing as a consequence. Software companies spend far more on marketing than production costs for similar reasons. Marketing is essential for recovering development costs for drugs the same as it is for software. If marketing did not pay for itself and contribute positive revenue, nobody would do it. Drug companies have a finite amount of time to recover their very high development costs.
  - monocasa 7y ago
    He misspoke when he said production. He meant R&D. And yes, bug pharma spends more on marketing than R&D. https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/ https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p...
    - pbhjpbhj 7y ago
      You're right, I didn't mean "manufacture". Production of a good to my understanding includes inter alia R&D and manufacture. All the steps from starting with nothing, to having goods to provide.
- aaavl2821 7y ago
  Big pharma companies spend a lot on marketing, often more than on r&d, but most drugs come from small companies with no marketing budget. These companies develop drugs, and partner with pharma to commercialize the drugs, or pharma buys them outright HBM did an analysis of novel FDA approved drugs from 2008-2018 which showed over 60% of FDA approved drugs were originally developed by small companies, and just 12% iirc by big pharma And most drug development efforts these days focus on medicines that can be truly impactful to patients. There is a correlation between clinical value and price, and many markets are winner take most, and winners are chosen by prescribers and payers based on their benefits to patients One data point to illustrate the industry's increased focus on innovation is that historically, nearly all drug development programs were small molecules and biologics -- decades-old tech. Of the companies that IPOd in the last 5 quarters, there are more gene and cell therapy programs than small molecule

dekhn 7y ago

Those numbers aren't completely off. I work in pharma and am quite familiar with the R&D budgets. Everything is amortized in large pharma (across projects, over time, over shared supporting facilities). It factors in the cost of failures, the failure rate is very high, and this is a regulated/validated industry so just making admin changes to code requires extensive process.

aaavl2821 7y ago

I agree that it is controversial but I think that study is better than many of the others. None of the studies on this issue are without controversy from what I've seen Part of the reason I made this tool is so people could input their own assumptions rather than just relying on somewhat opaque studies. I personally was surprised to see how big the effect of discount rate was -- it made me reconsider my position on whether more drug dev should be publicly funded. I think the effect of cost of capital on drug price is under-discussed in some of these studies