People, Perspective

Want to start a fight? Step one: Offer up an estimate for what it costs to develop a new drug

There’s no better way to get a debate underway in biopharma than coming up with a hard estimate for what it costs to develop a new drug. Industry critics like Public Citizen have delighted in calling out developers for what they see as inflated numbers. Tufts came up with the most frequently cited figure: totting up at $2.6 billion. And FDA commissioner Scott Gottlieb even recently cited the high cost of drug development, tying it to high prices when he laid out a plan to help speed up R&D in the US.

So this week it’s no surprise that a new study led by OHSU’s Vinay Prasad — which came up with a new number: $648 million, or $757 million if you included the cost of capital — has been spotlighted for days on Twitter as the debate rages on.

In coming up with this number, Prasad and Sham Mailankody singled out 10 companies that had developed one new cancer drug to see how much it cost on average to win an approval and what that approval would be worth. While the cost ranged wildly between the high and the low, $157 million to close to $2 billion, the median of $648 million while after a median 4 years of marketing “total revenue from sales of these 10 drugs since approval was $67.0 billion compared with total R&D spending of $7.2 billion.”

Prasad’s bottom line:

In a short period, development cost is more than recouped, and some companies boast more than a 10-fold higher revenue than R&D spending—a sum not seen in other sectors of the economy.

BIO’s Jim Greenwood, who’s been leading an industry effort to underscore the extraordinary risks of drug R&D, quickly fired back, saying the study’s authors were trying to grind a familiar ax with the industry. The numbers don’t account for the huge cost of failures across the board — and included the big sums paid in acquiring two of the drugs as part of the reward — singling out companies that had won an approval. And when you narrow it down to the novel therapies that were approved, the hard cost was $900 million — which they didn’t see as all that far from the $1.4 billion in hard costs cited by Tufts.

Noted Greenwood:

This industry, unlike any other industry, has tremendous uncertainty surrounding future reward from ongoing R&D. Failures are the norm in biotech. Due to this simple fact, investors will not invest in R&D companies if there is no compensating upside for the few wins achieved across their portfolio.

Perhaps Scott Gottlieb said it best this week when he looked over the estimates and said that it wasn’t unusual to spend more than a billion dollars on drug development.

So we can all (mostly) agree that the risks are daunting — even in oncology, where the FDA has been making big strides in speeding approvals — costs are at the least relatively high and rewards can be spectacular, pressuring payers of all stripes.

We can also agree that this is one debate that will simmer on for some time to come.


Image: Vinay Prasad The Washington Post


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