
Cost to Develop New Pharmaceutical Drug Now Exceeds $2.5B? - softdev12
http://www.scientificamerican.com/article/cost-to-develop-new-pharmaceutical-drug-now-exceeds-2-5b/
======
jimrandomh
This article is a reprint of a summary of a press release based on a study,
with no link to the actual study. Recent experience has lead me to be very
mistrusting of things like that, so I poked around. I didn't find the actual
study, but I did find some slides
([http://csdd.tufts.edu/files/uploads/Tufts_CSDD_briefing_on_R...](http://csdd.tufts.edu/files/uploads/Tufts_CSDD_briefing_on_RD_cost_study_-
_Nov_18,_2014..pdf)) about it.

$1.2B of this reported cost is "opportunity cost", based on the fact that you
could have taken the money you would've used for drug development and invested
it elsewhere... at a 10.5% real rate of return. Which is a rather questionable
assumption.

Practice epistemic self defense: go to the primary sources!

~~~
lumberjack
It's not that far off.

[http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf](http://piketty.pse.ens.fr/files/capital21c/en/pdf/T12.2.pdf)

~~~
jimrandomh
First result I came up with was
[http://www.thornburginvestments.com/pdfs/TH1401.pdf](http://www.thornburginvestments.com/pdfs/TH1401.pdf)
which states a 6% real rate of return on the S&P 500.

~~~
lumberjack
That's well known. But if you have >$1B you don't simply put them into an S&P
tracking index fund in the same way that if I had $1K I would not even be
permitted to buy into some of the better performing index/mutual funds but if
I had $25K I could.

~~~
Retric
There is a lot of evidence that nothing consistently beats S&P 500 index funds
after accounting for risks. However, if you have >$1B there are a lot of
snake-oil salesman out there.

Note: Saying Fund X beat the average is meaningless you have to actually
investigate their risk profile which takes a lot of effort.

~~~
jessriedel
The endowments of the elite private universities beg to differ. Harvard's has
earned an average annual return of 12.9% over the past _20 years_ , and there
are many others with similar growth (although not similar size).

~~~
Retric
Harvard like many such institutions use leverage (loans totaled 5.9 Billion)
which is generally safe at low levels but not actually risk free. Like most
methods of producing steady returns above market rates they trade a small risk
of catastrophic loss vs steady above market rates.
[http://harvardmagazine.com/2009/07/liquidity-
leverage](http://harvardmagazine.com/2009/07/liquidity-leverage)

------
haberman
Interesting, in the comments is a link to this Doctors Without Borders
response, arguing that this figure is grossly overstated. They claim a number
closer to $186M (taking into account cost of failures)
[http://www.doctorswithoutborders.org/article/rd-cost-
estimat...](http://www.doctorswithoutborders.org/article/rd-cost-estimates-
msf-response-tufts-csdd-study-cost-develop-new-drug)

I don't know anything about this area, but would love to know whose figure is
closer to right on this.

~~~
gwern
What a screed. I went to factcheck their _first_ claim, on an Andrew Witty
quote, and here's what I found:
[http://pipeline.corante.com/archives/2013/03/18/glaxosmithkl...](http://pipeline.corante.com/archives/2013/03/18/glaxosmithklines_ceo_on_the_price_of_new_drugs.php)

Oh, so it's only less than $1b if your drugs _never fail in clinical trials_.
Well gee, it's a good thing everyone in the drug industry knows how to have a
100% approval rate!

I stopped there. It's pretty clear what level of thinking and intellectual
honesty went into that rebuttal.

------
bluthru
>In 2012, the pharmaceutical industry spent more than $27 billion on drug
promotion— more than $24 billion on marketing to physicians and over $3
billion on advertising to consumers (mainly through television commercials).
This approach is designed to promote drug companies' products by influencing
doctors' prescribing practices.

[http://www.pewtrusts.org/en/research-and-analysis/fact-
sheet...](http://www.pewtrusts.org/en/research-and-analysis/fact-
sheets/2013/11/11/persuading-the-prescribers-pharmaceutical-industry-
marketing-and-its-influence-on-physicians-and-patients)

~~~
refurb
Take a look at the graph in your link.

Almost 75% of that budget is on sales reps and free drugs. Having face-to-face
conversations with physicians doesn't come cheap.

Also, don't forget that drug companies are only allowed to promote to FDA
approved indications.

I don't see why drug companies advertising is such an issue. Despite what most
people think, great drugs don't sell themselves.

~~~
iandanforth
> drug companies are only allowed to promote to FDA approved indications.

Ever heard of Forteo? It's an osteoporosis drug and not one you want to find
out you need. It's got some nasty side effects (like cancer) and is a pain to
take (it's a daily injection.) Drug reps push it _hard_ because it works in a
novel fashion actually causing bone regrowth rather than slowing bone loss.
That said the very very specific circumstances of who should be on it are
almost never mentioned (in in person discussions, the FDA mandates the website
mentions everything). It is talked about as a treatment for osteoporosis
generally. It's talked about as a treatment to prevent fracture. Both of those
are technically true, but the slope here is so slippery that the concept of
'approved indications' is like an open window to a fly. There's a lot of room
to maneuver.

People are susceptible to advertising. Doctors are people. And when an
attractive 26 year old in a tight skirt walks into your office to talk about
writing just a few more prescriptions a month of something you already do,
well that's going to have an impact.

The distinguishing factor here though is that the consumer is left out of the
loop, the person who has to suffer the side effects is not part of the
marketplace. This is not your standard free market exercise where caveat-
emptor is an appropriate response. This is behind the scenes manipulation of
people who are often trusted blindly by their patients.

I pay good money to have access to people with the experience and expertise to
diagnose and treat my ailments. However if I find out that they are being
asked to be invulnerable to cognitive errors like the recency fallacy then I'm
screwed. It's unreasonable to ask people to be immune to manipulation and so
the only reasonable course is to limit manipulation as much as possible.

------
dprice1
See also this (opinion) piece in the NY Times, which disputes this
calculation: [http://www.nytimes.com/2014/11/19/upshot/calculating-the-
rea...](http://www.nytimes.com/2014/11/19/upshot/calculating-the-real-costs-
of-developing-a-new-drug.html)

------
RAB1138
Relevant: Eroom's law:
[http://www.nature.com/nrd/journal/v11/n3/fig_tab/nrd3681_F1....](http://www.nature.com/nrd/journal/v11/n3/fig_tab/nrd3681_F1.html)

So what do we do here? We're not just underfunding basic biology research,
it's rolling down hill and affecting the efficacy of our products oriented
pharma R&D investments.

Best proposal I've heard to pull out of this trend? Computational biology:
simulate different tissue types and organ systems (their dynamics, metabolic
pathways, flow of matter/energy/information) and expose the simulated tissues
to potential drugs in high-throughput simulations. Test exponentially more
compounds and prune obvious failure from the chemical structure tree early and
often. What you're left with is a restricted set of compounds to try
synthesizing and taking to trial.

~~~
jjoonathan
They've been doing that (and other comp bio techniques) for decades so it's
already factored into the price. It's also a lot harder and less reliable than
it sounds, unfortunately.

------
snlacks
Costs are so high as these become more challenging, seems like Socialization
with subsidy of incentive-based private funding (bonds, VCs) would be a better
model.

------
christiangenco
This is a huge problem (even if this number is grossly inflated) - imagine the
quantity of drugs that could exist if something like this could be
bootstrapped.

I realize clinical trials are really important, because accidentally killing
lots of people isn't particularly desirable, but is there a way we could lower
this cost? What would need to happen?

~~~
jgmmo
Get government out of the way.

Why couldn't independent labs certify and insure products, a la Underwriters
Laboratories?

We could have drugs vetted by these respected medical organizations and be
labeled as such, think 'mayo clinic certified', 'johns hopkins certified',
etc.

~~~
jobposter1234
This model sounds a lot like the Moody's/S&P ratings-agency game. The failure
of the ratings system is one of the critical components identified as causing
the 2008 financial crisis.

I strongly dislike the mis-alignment of incentives, where the ratings /
approval group is paid by the company seeking approval. It has proven
disastrous in high-money systems, and I wouldn't trust it for pharma, which
has shown similar ethical outlooks as finance (that is to say, little matters
except profits).

~~~
jgmmo
The financial ratings agencies have government monopolies essentially, they
have special status (NSRSO's). Not easy to compete with government monopolies.
If more agencies could be ratings agencies maybe some would have thrown the
bullshit flag in time to prevent what happen.

Not to beat a dead horse, but if you remember the mortgage crisis was due the
government incentivizing subprime lending and having fed rate too low for too
long; creating a bubble in housing. The ratings agencies themselves were
accomplices, but not the sole problem by any stretch.

~~~
happyscrappy
Yes but an even larger problem was commoditizing mortgage bundles to such an
extent that even an honest rating company would not be able to figure the
risk.

~~~
jgmmo
That's what I don't understand. If the auditor couldn't understand the
investment then they should absolutely not give it a stamp of approval.

When in doubt, throw it out.

~~~
jobposter1234
Agreed, they _should_ throw it out, but they're also throwing out a paycheck.

FWIW, I was just parroting Nate Silver's section on the financial crisis. He
identifies the ratings agencies as one of the several groups responsible for
the downfall. In S&N, Silver discusses how the ratings agencies gave their
ratings software to the banks, so the banks could "dry-run" their tranches to
get the best ratings available.

They were more than just complicit -- they actively enabled the financial
groups to game the ratings.

------
stuaxo
Marketing is a pretty big part of the pie compared to R + D

[http://www.twnside.org.sg/title/twr131n.htm](http://www.twnside.org.sg/title/twr131n.htm)

------
gwern
Some positive discussion:
[http://pipeline.corante.com/archives/2014/11/24/the_cost_of_...](http://pipeline.corante.com/archives/2014/11/24/the_cost_of_developing_a_new_drug.php)
[http://lifescivc.com/2014/11/a-billion-here-a-billion-
there-...](http://lifescivc.com/2014/11/a-billion-here-a-billion-there-the-
cost-of-making-a-drug-revisited/)

~~~
aaron695
Those are quite good articles.

------
artsrc
> LaMattina counters that pricing should be based not on R&D costs but on the
> value a drug delivers to patients.

I love this line. We should do it for oxygen. Your bill is pretty high because
oxygen delivers a lot of value.

Pricing should be based on cost of provision. Because if it is higher in a
market economy someone else can enter the market and provide at a lower cost.

~~~
Houshalter
The economics of drugs are different. The probability of two different labs
inventing the exact same drug are pretty small. But when they do invent a drug
they have a limited monopoly to make their money back. Which is a good thing,
since it encourages more investment in drug development then there otherwise
would be.

------
debacle
This article is citing a study funded by the pharmaceutical industry.

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dnautics
The $1.5 billion average cost is an average, and includes a lot of stupid
ideas that should never have made it past the drawing board, but when you're a
rich big pharma with tons of money to throw around, why not.

If you are smart (and quite lucky) it's an order of magnitude less.

[http://www.forbes.com/sites/bernardmunos/2014/11/20/the-
ugly...](http://www.forbes.com/sites/bernardmunos/2014/11/20/the-ugly-cost-of-
developing-new-drugs-can-we-make-it-prettier/)

------
Thriptic
Nature Reviews Drug Discovery published a good overview of the factors
contributing to the high costs of drug development in 2010, along with some
suggestions of how to mitigate cost increases. It's a good read for anyone
interested in the subject.

[http://www.nature.com/nrd/journal/v9/n3/abs/nrd3078.html](http://www.nature.com/nrd/journal/v9/n3/abs/nrd3078.html)

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austinlyons
That's on the order of the cost to buid new Intel fab.

[http://en.wikipedia.org/wiki/List_of_semiconductor_fabricati...](http://en.wikipedia.org/wiki/List_of_semiconductor_fabrication_plants)

