Study takes aim at myth of high cost of drug development

Drug manufacturers claim their products are pricey because of the high cost and high risks involved in getting new drugs to market. But a recent study shows that these high cost estimates have been constructed by industry-supported economists and that R&D costs are not the barrier to drug development the drug companies maintain they are.

The study, by researchers at Stanford and the University of Medicine and Dentistry of New Jersey and published online in Biosocieties journal, also shows that current incentives reward companies for developing new medicines of little advantage that compete for market share at high prices, rather than clinically superior medicines with public funding that would reduce the price of drugs to consumers and actually lower risk to the pharmaceutical companies.

The study takes aim at drug companies’ inflated cost estimates and shows exactly where they are wrong. For example, figures typically bandied about — $800 million or $1.3 billion to develop a new drug – do not include the 39% contribution made by taxpayers through tax write-offs for R&D. Furthermore, the study shows that the industry-based figures are based on clinical trials (and number of participants) that are much larger than actual trials reported by the FDA and the National Institutes of Health.

Even worse, as much as half of the industry estimates are not real costs, but exaggerated estimates of profits that companies might have made if they put their money in the stock market instead of developing the drug. And even if the notion that foregone profits should be included as a cost – which, according to the study authors, no other industry does – U.S. government guidelines call for using three percent, not the 11 percent used to arrive at the $800 million figure.

In essence, the study argues, pharmaceutical companies “have it both ways,” treating R&D costs as though they were long-term capital investments even though the the taxman treats them like ordinary, fully deductible business expenses.

The study concludes that the real cost per “self-originated” drug product is closer to $180-231 million, noting that “the mythic costs of R&D are but one part of a larger, dysfunctional system that gives us mostly new medicines that have few or no advantages and serious side adverse reactions that have become a leading cause of hospitalization and death.”

Source: Alison Bass blog

You can read the report here.