I’m continuing my look at Bernard Munos’ paper on the drug industry, which definitely repays further study (previous posts here, here, and here). Now for some talk about money – specifically, how much of it you’ll need to find a new drug. The Munos paper has some interesting figures on this question, and the most striking figure is that the cost of getting a drug all the way to the market has been increasing at an annual rate of 13.4% since the 1950s. That’s a notoriously tough figure to pin down, but it is striking that the various best estimates of the cost make an almost perfectly linear log plot over the years. We may usefully contrast that with the figures from PhRMA that indicate that large-company R&D spending has been growing at just over 12% per year since 1970. Looking at things from that standpoint, we’ve apparently gotten somewhat more efficient at what we do, since NME output has been pretty much linear over that time.
But that linear rate of production allows Munos to take a crack at a $/NME figure for each company on his list, and he finds that less than one-third of the industry has a cost per NME of under $1 billion dollars, and some of them are substantially more. Of course, not every NME is created equal, but you’d have to think that there are large potential for mismatches in development cost versus revenues when you’re up at these levels. Munos also calculates that the chance of a new drug achieving blockbuster status is about 20%, and that these odds have also remained steady over the years – this despite the way that many companies try to skew their drug portfolios toward drugs that could sell at this level.
How much of these costs are due to regulatory burden? A lot, but for all the complaining that we in the industry do about the FDA, they may, in the long run, be doing us a favor. Citing these three studies, Munos says that:
. . .countries with a more demanding regulatory apparatus, such as the United States and the UK, have fostered a more innovative and competitive pharmaceutical industry. This is because exacting regulatory requirements force companies to be more selective in the compounds that they aim to bring to market. Conversely, countries with more permissive systems tend to produce drugs that may be successful in their home market, but are generally not sufficiently innovative to gain widespread approval and market acceptance elsewhere. This is consistent with studies indicating that, by making research more risky, stringent regulatory requirements actually stimulate R&D investment and promote the emergence of an industry that is research intensive, innovative, dominated by few companies and profitable.
But this still leaves us with a number of important variables that we don’t seem to be able to push much further – success rates in the clinic and in the marketplace, money spent per new drug, and so on. And that brings up the last part of the paper, which we’ll go into next time: what is to be done about all this?