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Demythologizing the high costs of pharmaceutical research

Abstract

It is widely claimed that research to discover and develop new pharmaceuticals entails high costs and high risks. High research and development (R&D) costs influence many decisions and policy discussions about how to reduce global health disparities, how much companies can afford to discount prices for lower- and middle-income countries, and how to design innovative incentives to advance research on diseases of the poor. High estimated costs also affect strategies for getting new medicines to the world's poor, such as the advanced market commitment, which built high estimates into its inflated size and prices. This article takes apart the most detailed and authoritative study of R&D costs in order to show how high estimates have been constructed by industry-supported economists, and to show how much lower actual costs may be. Besides serving as an object lesson in the construction of ‘facts’, this analysis provides reason to believe that R&D costs need not be such an insuperable obstacle to the development of better medicines. The deeper problem is that current incentives reward companies to develop mainly new medicines of little advantage and compete for market share at high prices, rather than to develop clinically superior medicines with public funding so that prices could be much lower and risks to companies lower as well.

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Notes

  1. 1.

    To do this, we first calculate costs for self-originated NCEs by multiplying $275.2 (the mean cost from Table 1, capitalized at 5 per cent as was done for median costs; capitalized mean amounts not shown in Table 1) and $203.7 million (the median cost from Table 1, capitalized at 5 per cent) by 21.8 (the number of self-originated NCEs in 100 newly approved drugs; $275.229 × 21.84=$6011 shows the exact, not rounded, numbers). We then divide the results ($6.0 billion and 4.4 billion, respectively) by 0.749 to determine total mean and median costs for all types of drugs, and enter the results on the total line. Finally, we multiply these totals by the appropriate cost shares for licensed-in NCEs and existing-molecule drugs (10.2 and 14.9 per cent, respectively), to determine their mean and median costs in a cohort of 100 approved drugs. The final step is to use the cost for our cohort of 100 approved drugs to calculate costs for one licensed-in NCE or existing-molecule drugs, and an overall average for all types of new drugs. For mean costs for licensed-in NCEs, for example, we divide the $819 million total by 13.2 (the number of these drugs in our cohort). The same calculation is done for median costs, and for existing-molecule drugs; the totals are determined by adding up mean and median costs for all three types of new drugs.

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Correspondence to Donald W Light.

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Light, D., Warburton, R. Demythologizing the high costs of pharmaceutical research. BioSocieties 6, 34–50 (2011). https://doi.org/10.1057/biosoc.2010.40

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Keywords

  • pharmaceutical research
  • costs
  • myths
  • neglected diseases
  • AMC (Advance Market Commitment)