Why Drugs Cost A Lot

In my pharmaceutical career, I have worked with many talented scientists and managers. We have all been trying to discover, develop or sell innovative new drugs to address real medical needs. This is a very long process - often upwards of ten years between research discovery of a "lead compound" and launch of the marketed drug. Finding a new blockbuster is highly unlikely.  Many pharmaceutical scientists go through brilliant careers, and add greatly to the world's scientific knowledge, without discovering anything that makes it to the market. I certainly managed that last clause.

But failure in drug R&D is not (usually) due to ineptitude.  To a first approximation, all drug candidates fail - often very expensively in late-stage clinical trials or, even more disastrously, after launch (eg Vioxx). Even if the drug candidate works well against its biochemical target in an in vitro ("test tube") setting, it will most likely be inactive in vivo (real life) and will often be downright toxic. When I worked in antibiotics research, I personally discovered several, chemically-interesting, new ways to kill bugs.  The problem was that my wonderdrugs always killed cultured mammalian cells just as effectively as they killed bacteria or fungi.  Since I consider myself a cultured mammal, I wasn't going to try the Jekyll-and-Hyde route to further testing.

New drugs have to be safe, especially if they treat non-life-threatening conditions.  They are tested until such time as we can think of no more feasible precautions to take.  Only then will drug regulators allow them to be sold.  Pharmaceutical R&D is therefore a high and inhospitable plateau of expensive and sustained failure, with very occasional peaks of scientific triumph. 

All of the this adds up.  Scientists and their equipment are not cheap.  Clinical trials can cost ten thousand dollars per enrolled patient. These are fixed costs - payable whether the drug is a new blockbuster or a very expensive addition to the universe of known placebos.  The tiny number of successes have to repay the costs of all the failures and the "opportunity costs" of not doing something more productive with the investors' money.  That's why, on average, the true development cost of a new drug is probably close to a billion dollars.

That's also why innovative new drugs have to command relatively high prices. Is the pharmaceutical industry as efficient as it could be at R&D? Does it spend too much on selling and promotion? Do branded drug prices need to be quite so high?  Those are separate questions.