Big bilking pharma
What it costs to make a drug
It’s tempting to view Big Pharma as Dr Evil in the medical value chain, but the resources that are ploughed into developing "blockbuster medicines", without certainty of success, are colossal. According to PhRMA, which represents pharmaceutical research companies in the US, it takes on average 10 years and US$2.6bn to develop a new medicine, with only 12% of candidates in clinical testing ever making it to the market. PhRMA says in the past 16 years "there were more than 120 unsuccessful attempts to develop medicines to treat Alzheimer’s disease, 96 for melanoma and 167 for lung cancer. Only four were approved to treat Alzheimer’s, seven for melanoma and 10 for lung cancer".
Of course, if your firm does successfully develop a cure for the conditions that are increasingly set to befall ageing high-income nations, then you are in the pound seats. Lipitor, the anticholesterol wonder drug, for example, raked in sales of over $9bn/year for parent Pfizer before going off patent.
Pfizer, incidentally, spent $7.87bn on research and development (R&D) expenses in the 2016 financial year — almost three times Aspen’s annual revenue at recent exchange rates.
Ascendis Health CEO Karsten Wellner says the development cost of a single new chemical entity can be as much as $850m. For "biosimilars" — officially approved versions of original products, also known as "follow-on biologics" — Wellner says the cost is about $100m, while a commodity generic can be as low as $1m.
Investopedia lists 10 steps to producing a new drug, including developing the compound, clinical trials, initial US Food & Drug Administration application, review, inspection and, finally, approval — or rejection.
Clearly, none of this is cheap, but Health Affairs Blog, a health policy site that has been used in US congressional testimony, says R&D costs do not explain high US drug prices in particular. Its research found there are "billions of dollars left over even after worldwide research budgets are covered".
"To put the excess revenue in perspective, lowering the magnitude of the US premium to a level where it matches global R&D expenditures across the 15 companies we assessed would have saved US patients, businesses and taxpayers approximately $40bn in 2015."