The Cost to the Economy of a New Drug

At Forbes, Matthew Herper follows up on previous work about the cost of drug development, by looking at the actual R&D costs incurred of companies with successful drug development over 10 years, divided by the number of drugs each has marketed. This includes failures, which is a more useful way of looking at the cost of innovation than just looking individually at the cost of each program from discovery to market - you have to include failures to give a real picture of the cost of innovation. The answer? The median amount spent by companies per drug getting to market for the last ten years is $808 million; the average was just under $2 billion. The outliers are the big guns at the top of the list.

Keep in mind that even by including failures, this list is still weighted toward success, and does not really give us "dollars that are spent in the economy for each new drug". There are a lot of companies that burn through a lot of cash without ever getting anything to market. The numbers above would be much higher if we included that.

Herper concedes that especially in the larger companies, some of the R&D spending is masked as acquisitions (and Abbott is indeed at the top of the list). But don't worry about that, because what's more frightening is that drug development shows reverse economies of scale, and multi-approval companies spend MORE per drug. Concretely: for companies that have marketed 4 ore more, they spend a median of $4.2 billion per drug. 5 or more? 5.3 billion per drug.

Finally Herper points out that in fact the distribution is distorted because a lot of those low per-drug costs at 1-drug companies are really higher, and they're being hidden here in the budgets of partner companies. Fine, so let's take the combined cost of all the drugs that have come to market over ten years, and divide by the number of drugs - this is the economic cost per drug of the entire biopharma world, i.e. what it costs an economy to make a drug. And that cost is $3.6 billion per drug. That's the absolute lower bound that policy-makers need to keep in mind, because it still doesn't include the one-drug companies that never made it to market.

If we want to continue producing new drugs and/or have governments and individuals actually be able to afford them, we need a profound retooling of the clinical research enterprise. Soon.