3 ms·

Yeah, $5Bn may be a bit of an exaggeration, but it's not off by an order of magnitude; this review, based on data from Eli Lilly, put the fully capitalized R&D

by timr 6y ago

Yeah, $5Bn may be a bit of an exaggeration, but it's not off by an order of magnitude; this review, based on data from Eli Lilly, put the fully capitalized R&D number at $1.8Bn in 2010: https://www.nature.com/articles/nrd3078 https://www.nature.com/articles/nrd3078 (one can certainly quibble over the "cost of capital" assumptions these days, but the model isn't wildly wrong.) > That billion dollar figure is risk adjusted per product meaning that's the cost of all R&D and clinical trials against the number of products that hit the market. Yes, but as you know, you can't simply separate the successful products from the ones that fail. The former pay for the latter. > A lucky startup can pull off a successful trial for a few hundred million (i.e. Sofosbuvir), if not tens of millions for an orphan drug. Sure, one can always hit the lottery. But unlike startups (where the N-independent-failures model works OK), drugs don't make it to market without a deep-pocketed company willing to set huge piles of money on fire in the final phases. Your other comment below does a good job of explaining why trials are insanely expensive...which is why lucky startups almost never run their own. So you're dependent on a system where deep-pocketed mega-corporations need to exist simply to get the drugs on the market, and they are reliant on massive returns to take the risk in the first place.

Retric 6y ago
Globally there are ~50 new drugs per year. Total public and private spending on drug R&D hits ~190B per year. So even including government and charity donations your only up to 4 billion per drug. Private companies nominally cover ~60% of that dropping their investment to ~2.3 billion per successful drug. However, that’s overly generous as a great deal of tax breaks etc indirectly subsidize that 2.3 Billion. So, it’s true drugs are expensive on average to create, larger numbers tossed around are generally intentionally misleading.
- refurb 6y ago
  This is not a bad back of the envelope analysis. Forbes did one a while back that looked at 10 year R&D spend and then 10 year approvals (to account for the delay). Numbers vary wildly between companies. But one thing to keep in mind is using your number, there are plenty of drugs that get approved that only have a few billion in sales over their lifetime. So either break even or not even breaking even. It’s a massive blockbusters like Lipitor ($10B in sales per year) that pays for all the mediocre drugs.
  - Retric 6y ago
    I think the issue people have is the public spends about 1.4 trillion on patented prescription drugs per year globally which is more than 10x what drug companies are spending on R&D. Especially when manufacturing and distribution is such a small fraction of this cost. While time value of memory explains some of that it’s still a huge discrepancy. Advertising etc make up the difference and while cost effective for the company, their harder to justify as a fraction of drug prices. Especially when over prescription is so harmful due to side effects and adverse drug interactions.

by timr 6y ago

Retric 6y ago

Globally there are ~50 new drugs per year. Total public and private spending on drug R&D hits ~190B per year. So even including government and charity donations your only up to 4 billion per drug. Private companies nominally cover ~60% of that dropping their investment to ~2.3 billion per successful drug. However, that’s overly generous as a great deal of tax breaks etc indirectly subsidize that 2.3 Billion. So, it’s true drugs are expensive on average to create, larger numbers tossed around are generally intentionally misleading.

refurb 6y ago
This is not a bad back of the envelope analysis. Forbes did one a while back that looked at 10 year R&D spend and then 10 year approvals (to account for the delay). Numbers vary wildly between companies. But one thing to keep in mind is using your number, there are plenty of drugs that get approved that only have a few billion in sales over their lifetime. So either break even or not even breaking even. It’s a massive blockbusters like Lipitor ($10B in sales per year) that pays for all the mediocre drugs.
- Retric 6y ago
  I think the issue people have is the public spends about 1.4 trillion on patented prescription drugs per year globally which is more than 10x what drug companies are spending on R&D. Especially when manufacturing and distribution is such a small fraction of this cost. While time value of memory explains some of that it’s still a huge discrepancy. Advertising etc make up the difference and while cost effective for the company, their harder to justify as a fraction of drug prices. Especially when over prescription is so harmful due to side effects and adverse drug interactions.