This is the seminal and oft-cited source of those estimates for cost of drug development. The data comes from internal financial records at pharma companies. This is a 2010 paper and costs have since increased:
Bottom line is that it is expensive to develop drugs because most of them fail. You need to spend millions of dollars on dozens of drugs that don't work in order to get one drug approved.
The single biggest cost driver is cost of Phase 2 failure. Basically when a drug that works in animals doesn't work in people. It costs $40-50M+ and takes 5-7 years to get through phase 2 and over 60% of phase 2 studies fail
This is because biology is hard. So the fundamental reason drugs are expensive is because biology is hard
You can also look at high level financial metrics compared to new drug approvals to get an orthogonal way of assessing r&d productivity. The top 15 pharma companies spend a combined $70B on r&d per year. In 2017 only 49 new drugs were approved and only like 40% of those were developed by big pharma (the rest were developed by startups that were acquired by big pharma, or developed by mid size pharma). Even if all 49 of those drugs go on to make $1B a year, that will still not return a profit to even just the top 15 pharma companies
Also most of those drugs are developed for cancer or rare disease bc the economics of developing drugs for those conditions actually work. For things like cardiovascular disease, stroke, or psychiatric disease, where the economics don't work out, you see very few new drugs despite massive need for better treatments. This has nothing to do with patents and everything to do with the cost of r&d. If pharma companies could develop a new heart drug for cheap and get some lame patent protection to give them a monopoly they would do it
The linked article is behind the paywall. From you comment I still can't take out _why_ this costs so much. It sounds like development cost X because phase of development cost Y. I find it strange that you can say that something called "phase 2" costs precisely $40-50M+. What does it involve that it cannot cost $1M or $100k? What's so hard about biology that makes it expensive? What I am seeing is just words but no substance or maybe I don't understand something? I would love get more insight.
It actually costs an average $40M (as of 2010) to do a phase 2 study. That's an average, not a precise cost. The cost entails designing a study, getting regulatory approval, recruiting hundreds of patients, paying for multiple doctor visits for each patient, manufacturing the drug, process engineering, administrative costs, getting hospitals and healthcare facilities onboard to treat patients, lab tests for all the patients, development of custom biological assays to measure the drugs activity, payments to lawyers and consultants, plus paying dozens of employees for a few years
There is an additional $30-40M needed just to get to phase 2 plus the $40m or so for the phase 2 study.
The why is biology hard question is beyond the scope of this post, and I'm not a biologist (though i work with them). But I think a lot of it has to do with the fact that biologists can't directly study human biology -- you can't just delete a gene in people and see what happens, or stick a bunch of random chemicals in somebody. Even if it wasn't ethically, financially and logistically challenging to do that, you couldn't always even see what you want to see. You can't watch changes in live human organs at the level of watching specific molecules, you can't see where all the molecules go and how they impact all other systems in the body in real time. You just have snapshots of specific things, like analysis of blood samples, or imperfect models, like animal or cell models that seek to replicate specific biological phenomena
Contrast that with something like computer science, where you can directly play around with the thing you want to study -- computers. Or chemistry -- you can be in a lab and work directly with the chemical matter you want to study. Not that those are easy, but you at least can poke around directly at the stuff you want to learn about
https://www.nature.com/articles/nrd3078
Bottom line is that it is expensive to develop drugs because most of them fail. You need to spend millions of dollars on dozens of drugs that don't work in order to get one drug approved.
The single biggest cost driver is cost of Phase 2 failure. Basically when a drug that works in animals doesn't work in people. It costs $40-50M+ and takes 5-7 years to get through phase 2 and over 60% of phase 2 studies fail
This is because biology is hard. So the fundamental reason drugs are expensive is because biology is hard
You can also look at high level financial metrics compared to new drug approvals to get an orthogonal way of assessing r&d productivity. The top 15 pharma companies spend a combined $70B on r&d per year. In 2017 only 49 new drugs were approved and only like 40% of those were developed by big pharma (the rest were developed by startups that were acquired by big pharma, or developed by mid size pharma). Even if all 49 of those drugs go on to make $1B a year, that will still not return a profit to even just the top 15 pharma companies
Also most of those drugs are developed for cancer or rare disease bc the economics of developing drugs for those conditions actually work. For things like cardiovascular disease, stroke, or psychiatric disease, where the economics don't work out, you see very few new drugs despite massive need for better treatments. This has nothing to do with patents and everything to do with the cost of r&d. If pharma companies could develop a new heart drug for cheap and get some lame patent protection to give them a monopoly they would do it