
How do you value a drug? - aaavl2821
https://www.baybridgebio.com/drug_valuation.html
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Apfel
I must take issue with the "$2.6 billion to create a new drug" statement.

This is an extremely controversial figure within the pharmacoeconomic
literature.

It comes from a publication by the Tufts centre for drug development, who are
heavily pharma-funded, and it is repeated verbatim by those with vested
interests in the pharma industry.

More on this here:
[https://www.washingtonpost.com/news/wonk/wp/2014/11/18/does-...](https://www.washingtonpost.com/news/wonk/wp/2014/11/18/does-
it-really-cost-2-6-billion-to-develop-a-new-drug/?utm_term=.d52e7cdc88e9)

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mft_
As you say, it's a controversial --and complicated-- figure to determine.

The problem is that there's a big range, which mostly reflects different
routes of drug _discovery_. To take two contrasting examples:

1\. A target and potential molecule are discovered and developed in an
academic lab, following which a small lean biotech is 'spun out' to develop
the molecule further. This biotech accesses funding, and spends an amount of
money --usually in the low hundred-millions, but sometimes less-- running the
studies and collecting the data necessary to approach approval. With luck and
a following wind, they succeed, and their overall cost is low for the
industry. (See the lower end of the table in [1]). If they fail, the biotech
sinks without a trace.

2\. A large pharmaceutical company need to continue developing new drugs to
maintain its existence. It has a drug discovery operation or two, trying to
find new targets and develop new drugs for them. There's significant attrition
of these molecules here. Any promising molecules are taken into early-phase
trials, where further significant attrition of these molecules takes place.
Finally, if those studies are successful, the molecule heads to expensive
phase III trials. Here, it's worth noting that the big players in pharma will
have a combined R&D budget (encompassing all that we've mentioned here, plus
some more) of multiple billions per year.

So for small single-molecule biotechs... Firstly the low end of the estimated
development cost range ignores a lot of the discovery costs as they were borne
by the academic lab. Secondly, the low estimates don't account for failure -
as failed biotechs wouldn't be included in the estimates.

In contrast, the estimates for big Pharma do include their discovery costs,
and can (in a decent analysis) also include the huge cost of multiple drug
failures along the way to getting one drug approved.

Have a look at the linked analysis [1]. Rather than trying to estimate the
cost of a single drug, it looks at the overall money spent on R&D versus new
drug approvals in that time. (The methodology isn't perfect; but overall, it's
probably a better picture of the cost of drug development across the board
than a single-molecule estimate.)

[1] [https://www.forbes.com/sites/matthewherper/2013/08/11/the-
co...](https://www.forbes.com/sites/matthewherper/2013/08/11/the-cost-of-
inventing-a-new-drug-98-companies-ranked/#373ff0a42f08)

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pbhjpbhj
Are drug manufacturers still spending more on marketing than on drug
production?

Don't they spend a good deal on simply trying to make a drug to work around
someone else's IP, rather than making drugs where there is a new benefit --
that might account for most of the R&D for all I can tell, it doesn't appear
to be included in this analysis?

~~~
jandrewrogers
Drugs, like software, have very low production costs. The vast majority of the
cost is in _development_. It is expected for marketing costs to exceed
production costs while spending ordinary amounts on marketing as a
consequence. Software companies spend far more on marketing than production
costs for similar reasons.

Marketing is essential for recovering development costs for drugs the same as
it is for software. If marketing did not pay for itself _and_ contribute
positive revenue, nobody would do it. Drug companies have a finite amount of
time to recover their very high development costs.

~~~
monocasa
He misspoke when he said production. He meant R&D. And yes, bug pharma spends
more on marketing than R&D.

[https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p...](https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-
pharmaceutical-companies-are-spending-far-more-on-marketing-than-research/)

~~~
pbhjpbhj
You're right, I didn't mean "manufacture". Production of a good to my
understanding includes _inter alia_ R&D and manufacture. All the steps from
starting with nothing, to having goods to provide.

------
ahakki
Learn from the Best:

[https://youtu.be/amq4SzYDc34](https://youtu.be/amq4SzYDc34)

------
hiram112
I don't think most people know the actual costs to R&D, market, develop, etc
of new drugs. They just complain that their new anti-cholesterol or anti-
depressant costs $300 (at least before the insurance kicks in).

But many consumers don't do their research. Most new patented drugs aren't
much more effective than numerous generics that would cost a few dollars. It
doesn't help that doctors seem to be bribed to prescribe the newer ones.

I do feel bad for those people on experimental cancer or other life-saving
drugs who have no other options. But that is capitalism.

What really bothers me, though, is the generic market is completely
fraudulent, so much that apparently the US Government is filing a lawsuit
against numerous manufacturers.

The one drug I need costs me almost $150 / month out of pocket. Its patent
expired before I was even born, and I've purchased it in Europe for about $20
without even needing a prescription.

* [https://www.cbsnews.com/news/generic-drug-lawsuit-massive-fr...](https://www.cbsnews.com/news/generic-drug-lawsuit-massive-fraud-an-attack-on-the-american-people-connecticut-attorney-general-says/)

