iStock_000002406728SmallResearch and development (R&D) cost for prescription drugs is often a central theme to the drug-pricing debate. It is indeed one of the reasons why drug cost can sometimes be very high. The argument never seems to really hold water with anybody, particularly for individual drugs that exceed market expectations, where payers and the public sometimes argue that there should be opportunities to lower price. The Price of Global Health (Second Edition) goes more in depth on the drug-pricing debate and on why prescription drugs are different from other products. So what is new in this discussion?

Cost Doubled Over Seven Years

Recently, Joe DiMasi of the Tufts Center for the Study of Drug Development published an update of his periodic Cost of Developing a New Drug study, showing an estimated average cost of $2.6 billion per new approved prescription drug. His previous study, in 2007, showed cost per drug to be $1.3 billion. The new estimate is closer to even higher estimates reported by Forbes in 2012. Forbes simply divided reported R&D cost over the number of approved new agents from 1997 to 2011 and showed numbers ranging from $3.5 billion for Amgen to almost $12 billion for AstraZeneca.

Are Payers to Blame?

DiMasi attributes the doubling of the research cost over seven years to factors such as clinical trial complexity, larger trial sizes, changes in protocols to include health technology assessment (HTA) information, testing of comparator drugs, as well as greater focus on targeted chronic and degenerative diseases and higher cost of inputs from the medical sector used for development. It seems intuitive that cost of chronic drug development and the advances in complex biotechnology lead to cost increases. It is interesting, though, that the payer demands for comparative and HTA data collection is partly to blame for the cost increases. That does not make payer demands for evidence necessarily unreasonable, but it shows a need for trade-off.

Should Payers Just Pay for R&D?

Some European payers have asked me whether the cost of R&D should be included in some kind of price calculation. I very much appreciate the dialog and willingness from payers to think about the issue from a manufacturer perspective, but I believe that drug pricing should be driven by value, not development cost. R&D-based companies that are inefficient will have to shake up or make room for others that do a better job, not be paid for their failures. Drug development should continue to be a competitive endeavor.

Emphasis on Patient Value

Perhaps obvious, but the need to demonstrate value to patients for individual drugs is more pressing than ever. In the United States, patients are increasingly faced with high co-pays for innovative drugs. Outside the United States, payers in countries such as Germany and France have significantly increased demands for comparative evidence. Pharmaceutical companies will have to be willing to consider higher investments in more risky trials. Ironically, these same trials may further drive up the cost of development. Let’s talk …

Topics: pharmaceutical industry, Market Access & Pricing, Drug pricing, Ed Schoonveld, The Price of Global Health, drug development