A few weeks ago I reviewed Ben Goldacre’s new book, Bad Pharma, an examination of the pharmaceutical industry, and more broadly, of the way new drugs are discovered, developed and brought to market. As I have noted before, despite the very different health systems that exist around the world, we all rely on private, for-profit, pharmaceutical companies to supply drug products and also to bring newer, better therapies to market. It’s great when there are lots of new drugs appearing, and they’re affordable for consumers and health systems. But that doesn’t seem to be the case. Pipelines seem to be drying up, and the cost of new drugs is climbing. Manufacturers refer to the costs of drug development when explaining high drug prices: New drugs are expensive, we’re told, because developing drugs is a risky, costly, time consuming endeavor. The high prices for new treatments are the price of innovative new treatments, both now and in the future. Research and development (R&D) costs are used to argue against strategies that could reduce company profitability (and presumably, future R&D), be it hospitals refusing to pay high drug costs, or changing patent laws that will determine when a generic drug will be marketed.
The overall costs of R&D are not the focus in Goldacre’s book, receiving only a short mention in the afterword, where he refers to the estimate of £500 million to bring a drug to market as “mythical and overstated.” He’s not alone in his skepticism. There’s a fair number of papers and analyses that have attempted to come up with a “true” estimate, and some authors argue the industry does not describe the true costs accurately or transparently enough to allow for objective evaluations. Some develop models independently, based on publicly available data. All models, however, must incorporate a range of assumptions that can influence the output. Over a year ago I reviewed at a study by Light and Warburton, entitled Demythologizing the high costs of pharmaceutical research, which estimated R&D costs at a tiny $43.4 million per drug – not £500 million, or the $1 billion you may see quoted. Their estimates, however, were based on a sequence of highly implausible assumptions, meaning the “average” drug development costs are almost certainly higher in the real world. But how much higher isn’t clear. There have been at least eleven different studies published that estimate costs. Methods used range from direct data collection to aggregate industry estimates. Given the higher costs of new drugs, having an understanding of the drivers of development costs can help us understand just how efficiently this industry is performing. There are good reasons to be critical of the pharmaceutical industry. Are R&D costs one of them?