A recent editorial (Avorn J. NEJM 2015; 372: 1877-79) helps provide some perspective on a recent unpublished study that “it costs pharmaceutical companies $2.6 billion to develop a new drug.”  (http://csdd.tufts.edu/files/uploads/cost_study_backgrounder.pdf)

Dr. Avorn notes that when this study is published scrutiny over the methods is needed; however, the authors of the study note that their methods are unchanged from a previous 2003 study (NEJM 2015; 372: 1972). Apparently the analysis was based on data from 10 drug makers regarding compounds that they had ‘self-originated.’

Some preliminary criticisms:

• Nearly half the costs were attributed to the cost of capitol rather than direct spending. This cost indicates that the money being used for drug development was not available for other purposes (“opportunity costs”); however, the capital costs were assessed at a very generous 10.6% per year, compounded.
• The analysis did not include the large public subsidies provided to pharmaceutical companies in the form of research-and-development tax credits.
• Pharmaceutical companies remain highly profitable and only spend a small fraction of their revenues on truly innovative research.
• Many of the drugs brought to market are not “self-originated.”
• Many drug costs are borne by the public via research at university-affiliated centers with the pharmaceutical companies taking the new discovery the last mile.  “Gilead Sciences did not invent its blockbuster treatment for hepatitis C, sofosbuvir (Sovaldi)…it acquired the product from a small company founded by the drug’s inventor, a faculty member at Emory University, much of whose work on the usefulness of nucleoside viral inhibitors was federally-funded.”

Bottomline: While pharmaceutical companies invest heavily in new drug development, the huge numbers often attributed to research costs may be overestimates; these type of analysis likely underestimate how much taxpayers have paid in subsidizing the foundation for new treatments.

Related blog post: The Difficulty with Drug Development | gutsandgrowth