The Difficulty and High Costs in Creating New Medications

Over the past several years, there has been significant discussion about the difficulty pharmaceutical and medical device manufacturers face bringing a product to market.  As a recent article from David Shaywtiz noted, “the difficulty of creating new and better medicines has been the subject of extensive – at times excessive – soul searching, a process that’s intensified as high-profile patents expire, along with their associated revenue streams, traditionally relied upon to support future R&D.” 

Much of the focus has centered on the ability of the Food and Drug Administration (FDA) to have the resources and capabilities to handle the number of applications for new drugs or devices.  There has also been concern about the lack of transparency and consistency in FDA decisions.  Whether the difficult regulatory pathway company’s face is caused by FDA or not, “both biopharma companies and patients awaiting new treatments find themselves struggling for viable solutions.” 

This is particularly problematic because as a recent Forbes article noted, “The average drug developed by a major pharmaceutical company costs at least $4 billion, and it can be as much as $11 billion.” 

Consumers argue that regulation is necessary to ensure safety and efficacy of products, creating a balance to the debate.  This balance however, has caused the public to become willfully blind and unable “to recognize the extent to which a deliberate and very conscious regulatory policy is putting a damper on what has traditionally been the world’s most vibrant drug development ecosystem.” 

Because developing new drugs is challenging, so inherently difficult, Shaywitz asserted that it is “crucial to do everything within our control to work together and create an environment, an ecosystem that stimulates and enables meaningful innovation.”  What is standing in the way however is that regulators have misapplied the “precautionary principle,” colloquially understood as “first, do no harm.”  He noted that, “the problem isn’t so much the sentiment as the way it’s reduced to practice.” 

The practice today is that no regulator wants to face a Congressional committee who demands to know how an approved drug was ultimately discovered to cause unexpected problems.   To avoid this, regulatory agencies raise the bar for approval high enough to reduce the likelihood of this occurring.  The problem with this however is that far “less attention is paid to the reverse – to the very real patients who never receive a new medication because excessive regulation resulted in prohibitively high hurdles, effectively dampening work, disincentiving investment, and stifling progress.” 

While in general, we want to ensure high standards for our products to be approved, particularly those with significant implications for our health, what many regulators appear to be doing is attempting to “protect doctors from themselves.”  In other words, regulators are worried that by approving a drug with “risks,” doctors will not be able to evaluate the individual risks patients will face taking them.  As a result, “patients are systematically denied access to medicines that might be useful, and for whom the risk/reward, when fully understood and discussed with their physician, would be worth it.” 

Shaywitz noted this “a critical point: not everyone has the same view of risk/reward, and by positioning themselves on the far, far end of this spectrum, regulators effectively substitute their often extreme value judgements for the considered views of others who might thoughtfully come to a different decision.” 

The problem is, “regulators don’t trust patients and doctors to make these judgments, and take these decisions into their own hands; the result has been bad for the entire biopharmaceutical ecosystem, and most unfortunately of all, absolutely disastrous for patients — of course the very people who regulators are ostensibly trying to protect.” 

Shaywitz noted that people should listen to one of the most compelling talks of TEDMED2011, presented by Juan Enriquez, and available here.  Enriquez presents an accessible and sensible discussion of the problem of the uncaptured costs of failing to innovate. 

Cost of New Drugs 

The drug industry has been tossing around the $1 billion figure to create a drug for a number of years, supported by a study by Joseph DiMasi of Tufts University.

 study creates additional concerns.  However, as Bernard Munos of the InnoThink Center for Research In Biomedical Innovation has noted, just adjusting that estimate for current failure rates results in an estimate of $4 billion in research dollars spent for every drug that is approved.  Munos showed divided each drug company’s R&D budget by the average number of drugs approved. This was far more dramatic. 

Wanting to make this even more rigorous, Forbes took Munos’ count of drug approvals for the major pharmas and combined it with their research and development spending as reported in annual earnings filings going back fifteen years, pulled from a Thomson Reuters database using FactSet.  They adjusted all the figures for inflation.  Using both drug approvals and research budgets since 1997 keeps the estimates being skewed by short-term periods when R&D budgets or drug approvals changed dramatically.  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. 

Why is it so expensive?  A single clinical trial can cost $100 million at the high end, and the combined cost of manufacturing and clinical testing for some drugs has added up to $1 billion. But the main expense is failure. AstraZeneca does badly by this measure because it has had so few new drugs hit the market. Eli Lilly spent roughly the same amount on R&D, but got twice as many new medicines approved over that 15 year period, and so spent just $4.5 billion per drug.

Why include failure in the cost? Right now, fewer than 1 in 10 medicines that start being tested in human clinical trials succeed.  Some biotechnology companies do manage to make it to market without having to spend money on failed medicines – but only because other startups went bust trying to test other ideas. 

Although drugs only account for 10 cents out of every dollar spent on healthcare, medicines are the easiest products to scapegoat for high costs in our health care system because their prices are easier to track.  However, “the reality is that the pharmaceutical business is in the grip of rising failure rates and rising costs.” 

The high costs of making drugs, coupled with the regulatory problems Shaywitz pointed out, is troubling for patients and health care professionals trying to improve patient outcomes.  “We can all only hope that new technologies and a better understanding of biology will turn things around.”