One Pharmaceutical Company spent on Average $12 Billion per new Drug they brought to Market

Posted by PITHOCRATES - July 28th, 2013

Week in Review

People hate pharmaceutical companies.  They think they’re gouging them on the price of their medication.  If the people only knew what it cost to bring a new drug to market (see The Truly Staggering Cost Of Inventing New Drugs by Matthew Herper posted 2/10/2012 on Forbes).

The average drug developed by a major pharmaceutical company costs at least $4 billion, and it can be as much as $11 billion…

Bernard Munos of the InnoThink Center for Research In Biomedical Innovation…divided each drug company’s R&D budget by the average number of drugs approved…

The range of money spent is stunning. AstraZeneca has spent $12 billion in research money for every new drug approved, as much as the top-selling medicine ever generated in annual sales; Amgen spent just $3.7 billion. At $12 billion per drug, inventing medicines is a pretty unsustainable business. At $3.7 billion, you might just be able to make money (a new medicine can probably keep generating revenue for ten years; invent one a year at that rate and you’ll do well).

…the main expense is failure.

Why include failure in the cost? Right now, fewer than 1 in 10 medicines that start being tested in human clinical trials succeed…

It really does cost billions of dollars to invent new medicines for heart disease, cancer, or diabetes. The reality is that the pharmaceutical business is in the grip of rising failure rates and rising costs. We can all only hope that new technologies and a better understanding of biology will turn things around.

This is why our medicines are so expensive.  And why we have to wait for patents to run out before cheap generics hit the market.  Because whoever will manufacture those cheap generics didn’t have to spend $12 billion to bring the drug to market.

If drug companies can’t recover these massive costs they may do something worse than charge us an arm and a leg for a drug that will save our life.  They may stop bringing drugs that can save our life to market.

People say the profit incentive shouldn’t guide something as important as health care and medicine.  But what is the alternative?  Have the government spend $12 billion to develop a life-saving drug?  Because they’re so smart and motivated by social responsibility?  Instead of profit?  Yeah, they sure can pick winners in the private sector.  Like Solyndra.  If you’re not familiar with the name it’s because Solyndra filed bankruptcy.  Because their solar panels were the wrong solar panels to bet on in the private sector.  But the federal government bet $535 million in loan guarantees because they were so sure that Solyndra was a winner.  And their bankruptcy shows why we don’t want the government spending $12 billion to develop a life-saving drug.  For the federal government is just not good at bringing things to market.

So if we want these life-saving drugs we have to let these drug companies recoup the $12 billion they spent to bring a new drug to market.  For the sad reality is that $12 billion is a bargain compared to what the government would spend.

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