Working in the pharmaceutical industry I have often wondered what determines which medicines are chosen to proceed along the drug pipeline. There seems to be one factor that determines how many medicines are invented, what diseases they treat, and, to an extent, what price patients must pay for them: COST. Cost is driven by the uncomfortable fact than 95% of the experimental medicines that are studied in humans fail to be both effective and safe.
Drug Development Cost
A company hoping to get a single drug to market can expect to have spent $350 million before the medicine is available for sale. In part because so many drugs fail, large pharmaceutical companies that are working on dozens of drug projects at once spend $5 billion per new medicine. It makes you wonder why they actually do research on medicines. Alot of the cost depends on failure rates late in the drug trials versus early on in the development pipeline. Keep in mind that for every small company that succeeds, there are many more that fail.
Why Keep Investing
A big pharmaceutical company carries that weight of failure, with both its successes and its failures on the books. So you have to wonder why Big Pharma spends so much. Let’s start with the fact that drug companies have tax incentives to count costs in research and development. They also are likely to spend extra money in order to get those medicines approved in other countries. Even more important is the fact that some R&D costs come from monitoring the safety of medicines after they become hits to monitor reports of side effects.
Drug Development Options
But if such a drug succeeds, the payoff can be enormous such as Pfizer’s Lipitor, which is now generic but which had annual sales of $11 billion. Another successful strategy is to focus on ultra-rare diseases; treatments for such ailments can cost $200,000 or more per patient per year, and be highly lucrative. But these drugs don’t seem to eat up much in the way of R&D money. Many biotechnology companies benefit from deals in which a big pharma partner does some of the heavy lifting, for instance designing and running big clinical trials to prove a drug’s worth. But small companies have also benefited by adopting drugs that were abandoned by the companies that invented them.
For example: Cubist Pharmaceuticals spent $220 million in R&D before its antibiotic, hit the market. But the drug, Cubicin, was invented at Eli Lilly, which put significant resources into developing it before abandoning it. Aegerion last year launched a new heart drug for patients with a rare genetic disease that causes super-high cholesterol; it had originally been developed by Bristol for heart patients, but abandoned because of side effects. Then there is the Cystic Fibrosis Foundation which paid for the early development of a medication against that disease, a lethal lung ailment, at Vertex Pharmaceuticals.
High Price to Pay
Pharmaceutical companies have defended the prices of their drugs by pointing to past estimates of the cost of developing a new medicine. Most of these estimates, which took a bottom-up approach of estimating each step in the drug development process. The Food and Drug Administration seems to be approving more drugs, even working with companies to help remove red tape and speed drugs for particularly serious diseases to market. And new technologies offer hope. Stem cells may allow for better safety testing of drugs, DNA sequencing for faster ways of figuring out what drugs to try to make.
Do you feel that pharmaceutical companies are justified in charging the price they do for prescription drugs?