The Unbearable Cost of Drug Development: Why Medicine Prices Soar


Wow, the cost of making new drugs is a jaw-dropper! Recently, I dug into some studies to see just how much it takes to bring a new therapy to the market. It turns out, on average, it’s over $2 billion per drug. That’s mind-blowing!

Deloitte, a big name in business services, has been keeping tabs on the rising research and development (R&D) expenses. They found that last year, the cost to develop a new drug went up by 15%, hitting around $2.3 billion. This figure covers everything from the discovery of the drug to it being available on the market. Deloitte tracked 278 late-stage assets; those are drugs that are either approved or in the last phases of trials.

This whole process is getting pricier. The expenses peaked back in 2019 at nearly $2.5 billion, just before COVID-19 hit. During the pandemic, R&D costs dipped because developers rushed to get vaccines and treatments out quickly. But even though total R&D spending from the top 20 biopharmas dropped a bit from $141 billion to $139.2 billion last year, it’s still much higher compared to a decade ago.

The return on investment (ROI) for these expensive drugs, though, took a nosedive. It plunged by 82% to a measly 1.2% last year. That’s the lowest it’s been in the 13 years Deloitte has been tracking this data. They blame rising costs and inflation, among other factors, for this slump.

There’s a lot of finger-pointing in the pharmaceutical world. Drug companies often say skyrocketing R&D costs are why drug prices are so steep. But, a study published in the British Medical Journal begs to differ. They took a look at the expenses of the 15 largest biopharma companies from 1999 to 2018 and found these companies spent 57% more on selling, general, and administrative (SG&A) costs compared to R&D. So, while R&D costs are indeed growing, it seems there’s more to the high price tags on new drugs than just the development expenses.

Kevin Dondarski from Deloitte mentioned that R&D costs are being pushed up by inflation and that the returns diminish as the drugs move from trials to the market. He also noted the decline in peak sales forecasts for new drugs. The amount a new drug is expected to make annually dropped by 22% to around $389 million last year.

The market is getting crowded, especially in areas like oncology and rare diseases. This competition drives down the sales per treatment. On top of that, drug developers also face challenges in getting reimbursements from insurers. Insurers are not too keen on paying for pricey treatments they believe offer minimal benefit to patients.

When we exclude COVID-19 drugs and vaccines, the average peak sales forecast fell 16% to $284 million. The rush to develop these pandemic-related treatments meant resources were diverted from other drug candidates.

But hey, not everything was gloom and doom during the pandemic. The need for speedy vaccine development pushed the industry to adopt new capabilities and approaches. Things like remote trials and new ways to engage patients became more common. Dondarski pointed out that the challenge now is making these innovations permanent rather than temporary fixes.

Looking at the average R&D cost per asset, $2.284 billion is still 11% below the all-time high reported in a 2014 study by the Tufts Center for the Study of Drug Development (CSDD). Back then, the cost of developing a new drug had skyrocketed to $2.558 billion. The high costs prompted some big pharma companies to change their strategies, cutting down on R&D spending and adopting new management and operational approaches to bring down costs.

Dr. Kenneth I Kaitin from Tufts CSDD noted that it’s no longer feasible for large pharmaceutical companies to handle the entire drug development process in-house. It’s too costly and difficult to justify the upfront expenses. That’s why many companies now collaborate more and outsource certain stages of development.

In another study from the UK, Dr. Aris Angelis emphasized a shift in the industry from blockbuster drugs, which target chronic diseases and are sold globally, to “nichebuster” drugs. These drugs target rare diseases or have narrow indications, and they can command higher prices.

Dr. Angelis’s research highlighted a sharp rise in the net price of newly launched prescription drugs. From a median price of $1,400 a year in 2008, prices jumped to more than $150,000 a year in 2021. Reuters found an even higher median annual price of nearly $200,000 in January.

It’s clear there’s a lot happening in the world of drug development. Costs are rising, sales forecasts are dropping, and the returns on investment are falling. Meanwhile, new innovations and strategies are being pushed forward, permanently changing the landscape of pharma R&D.

As I see it, the challenges are enormous, but the drive to innovate and improve remains strong. The hope is that these new approaches and the lessons learned during the pandemic will help usher in an era of more efficient and effective drug development.







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