Drug companies frequently justify the high cost of medications by citing the extraordinary expenses associated with research and development. The pharmaceutical industry often states that it costs somewhere between $2 and $3 billion dollars to bring a new drug to market.
“The average R&D cost required to bring a new FDA-approved medicine to patients is estimated to be $2.6 billion over the past decade (in 2013 dollars), including the cost of the many potential medicines that do not make it through the FDA approval.”
PhRMA goes on to state that its member companies invest 20% of revenue into R&D.
How Costly are Clinical Trials?
Clinical trials necessary for FDA approval are cited as a major contributor to the high cost of medications. A new study published in JAMA Internal Medicine (Sept. 24, 2018) challenges the idea that pivotal efficacy trials account for a substantial portion of R&D costs.
The investigators analyzed data from 138 trials conducted on 59 new drugs. The median cost was $19 million. The range went from $5 million to $347 million.
The most expensive trials were those in which thousands of patients were needed to establish a statistical difference between the active medication and a placebo or comparison drug. Medications that are highly effective do not require nearly as many subjects or as much money to demonstrate their worth.
Can Clinical Trials Justify the High Cost of Medications?
According to the study senior author, G. Caleb Alexander, MD, MS, associate professor of epidemiology and medicine at the Bloomberg School:
“The cost of generating this fundamental scientific information is surprisingly low given the total cost of drug development and the high price tags on many drugs.”
If one takes the median cost of $19 million to perform a pivotal clinical trial, that would represent one percent of the total necessary to bring a drug to market (if one accepts the $2.6 billion figure).
Does it Really Cost $2.6 Billion PerDrug?
The pharmaceutical industry relies on an analysis by the Tufts Center for the Study of Drug Development to arrive at the $2.6 billion estimate. Dr. Aaron Carroll is Associate Dean for Research Mentoring at Indiana University. In addition, Dr. Carroll is the director of the Center for Pediatric and Adolescent Comparative Effectiveness Research. Writing in the New York Times (Nov. 18, 2014), Dr.Carroll points out:
“The Tufts Center is funded, to a large extent, by the pharmaceutical industry. It is in the pharmaceutical industry’s best interests to have the public believe that it is very expensive to develop a drug. This belief helps drug companies justify the high prices they often charge.”
Dr. Carroll points out something we have long been concerned about. Drug companies justify the $2.6 billion R&D figure by adding in what they call time or opportunity costs. About $1.2 billion of the $2.6 billion belongs in this category. Dr. Carroll describes it this way:
“In other words, they estimate that drug companies could have made more money if they used their research investment for things other than drug development. While this is a perfectly sound economic argument, it often rings false to many. It’s true that a drug company might have been able to make more money by increasing spending in the short term on marketing, or by investing in land, but if at some point it doesn’t invest in research and development, it won’t be a drug company anymore.”
People Are Mad As Hell About the High Cost of Medications:
Our readers share their thoughts:
Sandra is a health professional in Waller County, Texas:
“As a retired pharmacist, I figured out decades ago that drug prices have nothing to do with the actual cost to the manufacturer. Everyone who pays taxes and/or medical insurance is paying for these unjustified high prices. We in the USA subsidize the drug costs of the rest of the world because, as far as I know, we are the only country that does not allow government providers to negotiate lower prices.
“Insurance companies can do so, but they keep the savings as a profit for themselves. When insurance companies negotiate a lower price with a manufacturer, it does not change what the pharmacies are charged by the wholesaler. It was common for the pharmacy to earn only two to five dollars over the cost of drugs costing $100 or more. The fee may have increased slightly, but not much I am sure.
“I take a generic drug that about five years ago cost me less than $15 for a three month supply. Then, several years ago, the next refill had jumped to more than $100 for the same quantity by the same manufacturer and has slowly increased since. I called other pharmacies and found that the two manufacturers had both made a similar price increase. Other comparable drugs cost even more.
“The most egregious thing to me is when our government pays for all, or almost all, of the costs to research & develop a drug, then turns it over to a drug manufacturer with no effort nor requirement to have them charge a moderate price for it. I don’t remember the drug, but just this a year a new drug developed by our government came to market, gave it to a French drug manufacturer, which then set a price in the thousands of dollars for a course of treatment.”
Frank in West Virgina is ticked off:
“Part of the problem is the obscene level of salaries the drug companies pay their top people. The CEO of Mylan Labs, received $19 million two years ago. No one is worth that kind of money! Add that overhead to the amount of money to what is spent on advertising and it’s no wonder these folks can claim they have to charge more.”
According to Healthcare Global, some other CEOs did even better:
- Alex Gorsky is CEO of Johnson & Johnson. In 2016 he “took home $21.2 million.”
- Jeffrey Leiden is CEO of Vertex Pharmaceuticals. In 2016 he “took home $21.8 million.”
- Leonard Schleifer is CEO of Regeneron Pharmaceutical. In 2016 he “took home $47,462,526.”
Robin in Portland, OR offers this closing comment:
“I’ve been calling my Senators and Representative about the rising cost of insulin for years. I feel like the person answering the call could care less.
“The pharmaceutical companies are one of the biggest lobby groups next to defense industries. Even though production costs have not changed radically, the cost to the consumer/insurance co. has TRIPLED over the last decade. Type 1 diabetics like myself have no other options. It’s either insulin or death.
“In other countries the cost is a fraction as much. Pharmaceutical companies raise prices to keep their investors happy and their CEO’s rich.”