You gotta love the pharma industry. For a bunch of smart people, we are pretty dumb sometimes. All it takes is one study published on drug development costs and suddenly everybody’s up-in-arms. The study, released in JAMA (The Journal of the American Medical Association) attempts to debunk the widely held notion that it costs ~$2B to bring a drug to market–at least that is how the media is picking up the story. The study says it more like $750M, a big difference. Know what else makes a big difference? Your sample, that’s what. In this most recent assessment the authors looked at 10 small companies that had successfully commercialized a cancer product. Knock knock. Who’s there? Bias, that’s who. Let’s count the ways: (1) only selected 10 companies, (2) only selected cancer compounds, (3) only selected small companies, and (4) only selected companies that won the drug development lottery and successfully brought a cancer drug to market. According to BIO, 95% of cancer drugs fail to make it to market. Where are those R&D costs included? Thought so.
Just to be clear, we have no idea what it costs to bring a drug to market, and to some degree we do care what the number is, but only a little. The point is, don’t publish a clearly biased study. What we won’t discuss is that the article goes on to state how profitable those companies were/are. Super. The same day the study was released, Dr. Scott Gottlieb (FDA Commissioner) spoke at the RAPS 2017 Regulatory Convergence Conference and said “There’s been criticism of the various estimates of how much it costs to develop a new drug. But we know some drug programs can easily top $1 billion, just in direct outlays.” Correct.
The industry and the public may not want to go crazy over drug development costs or pharma profits or drug pricing or CEO pay, because it all comes down to innovation. We probably want our best and brightest looking for new treatments, right? If so, then the reward has to be big enough to make up for the risk of failure. Like it or not, a lot of the innovation (we don’t know exactly how much) in the pharma industry is coming from smaller companies like the ones analyzed in the JAMA article. Again, it comes back to economics; risk, reward, supply, and demand. It’s why you don’t see hundreds of new automobile companies starting (and failing) each year, because single-digit returns on capital aren’t worth the risk of failure.
To sum this up, InsightCity asks; Why does R&D expense have to be linked to drug prices or to corporate profitability? We don’t care what it costs Ford to design, make, and market a car, we just know that it costs about $35,000. Buy it or not. Until the healthcare market says “no,” treatment costs will rise – that’s the consequence for living in a free market. Deal with it. Again, we don’t support high drug development costs, but drug development is the ultimate game of portfolio theory. As the great Ebby Calvin “Nuke” LaLoosh said “sometimes you win, sometimes you lose, and sometimes it rains.”