Drug Development Costs Lower Than Pharma Companies Claim

pharma companies medicine money

A team of UK and Belgian scientists has reported that drug companies spend up to €1.3B less on drug development than previously suggested, which raises questions about high drug prices set by some biotech and pharma companies.

The study, published in the journal JAMA, took publicly available data from pharma company financial reports with the US Securities and Exchange Commission. It then averaged the development costs of 63 out of a total of 355 drugs approved in the US between 2009 and 2018. The costs of failed clinical trials were also included in the calculation.

According to the public data, the 47 drug companies in the study spent an average of €1.2B bringing a new drug to market. This is much lower than the average from several previous studies, which could be as high as €2.5B ($2.8B). Of all indications, oncology drugs were the most expensive to develop.

Drug companies often point to high R&D costs to justify high drug prices,” said Olivier Wouters, Assistant Professor of Health Policy at the London School of Economics and Political Science, and lead author of the study.

Industry groups almost invariably cite the $2.8B (€2.5B) figure from a previous study, which relied on confidential data supplied by companies. We need more transparency to verify the claim by drug companies that high R&D costs justify high drug prices.”

The researchers didn’t look at the individual prices of drugs, so they couldn’t comment on whether advanced treatments such as gene and cell therapies were more expensive. This — along with the often small number of patients eligible for the treatment — is often cited to justify their often high prices such as the case of Novartis’ spinal muscular atrophy treatment Zolgensma, which has a price tag of almost €1.9B per patient.

The majority of companies in the dataset were smaller companies, as many big pharma companies report spending costs in a more opaque way. In addition, while the study didn’t include big European drug developers, Wouters told me that there was “no reason to think that our results should be different for similar-sized companies in Europe.

pharma companies drug pricing development

The reaction to the report was mixed. David Grainger, Chief Scientific Advisor at UK VC firm Medicxi, tweeted that the average price to develop a drug is a misleading measure due to high variation in technology and drug failure rates.

Indeed it only detracts from and confuses the debate. Drugs are, on average, very expensive to develop because most people doing it are pretty bad (or at least eye-wateringly inefficient) at it,” he wrote. “And why are they so massively inefficient? Because we allow people to charge unjustifiable prices for the eventual products.

Giovanni Mariggi, Partner at Medicxi, was also skeptical of the need for drug companies to release detailed cost data to the public. “Do we ask clothing brands to release their manufacturing costs in their margins? No,” he told me. 

What one needs to look at is, is whether this therapy is bringing something useful to the patient, is it really making a change?

However, the researchers asserted that pharma companies that justify high drug prices with high development costs should openly disclose the costs, either to the public or to regulatory agencies. 

The prices of some new drugs can be upwards of $100,000 (€90,000) per patient per year,” Jeroen Luyten, Associate Professor of Health Economics at KU Leuven and co-author of the study, stated. “We need transparency on the costs of drug development, otherwise we’re going into drug pricing negotiations blindfolded.” 

The debate is also in the political sphere, with drug pricing being a topical issue in US election campaigns. A separate study published by Wouters in JAMA Internal Medicine reports that the US pharma industry mobilized over €4.2B for US government lobbying and election campaign contributions between 1999 and 2018.  

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