The real price is paid by society dealing with a disease.
Developing a single new drug for Food and Drug Administration approval requires many expensive failures. It's the equivalent of building myriad designs of a new, hi-tech jet fighter, and then declaring the one that doesn't crash the winner. The industry has estimated that for every 5,000 compounds tested, only one will eventually pass muster with FDA. Crash and burn is the rule of drug development, and successful launches the rare exceptions.
The latest estimate of the costs of drug development is $2.6 billion, according to the Tufts Center for the Study of Drug Development. This includes the cost of clinical trials, and the so-called "opportunity cost" of the investments that drug companies make – or rather, the foregone gains from the other investments they (actually, their investors) didn't make. (Spending money developing a drug means investing less in, say, commercial real estate or software development, two other potential high return investments.)
Much of the cost lies in the lengthy clinical trials required by the FDA in order to get a drug approved for marketing in the U.S. These trials can take as long as 11 years, leaving less than half of the drug's patent life available at the beginning of its sales life. The long development times, and significant regulatory risks, lead to the high prices that new drugs command, especially for hard to treat diseases like cancer.
But even Tufts' estimate doesn't capture the full social costs of foregone or delayed drug development. Focusing on the development costs, or even drug prices, without understanding the full social costs of disease can make drugs seem much more expensive than they really are.
Take Alzheimer's Disease, which has no real treatments available. In 2014, the total annual burden of the disease is estimated at $214 billion. By 2050, that is expected to climb to $1.2 trillion. An expensive drug that reduced those costs – including the enormous burden on caregivers and public programs – would be easily worth its (likely) dizzying price tag, even more so after patent protection expired.
Consider the price of AIDS drugs as one benchmark. A study from late 2013, for instance, found that 20-year olds with HIV/AIDS in 2006-07 could expect to live about as long as non-infected individuals (to around 70). From 2000-02, the life expectancy was 14 years less than that (around 56). Thanks to highly-active antiretroviral therapy, HIV/AIDS has turned largely into a chronic disease. And much of the long-term value flows to patients, not drug companies.
So when we debate drug development costs and drug pricing, we need to consider the burden of the disease as well. That includes the loss in productivity from afflicted patients, the labor costs (including physicians, nurses and family members), and other associated treatment and diagnostic costs.
Innovation is an expensive business, and we should do all we can to make drug development more efficient and predictable. More treatments and more cures would also lead to more competition based on price and value.
But we need to keep our eyes focused on the costs of disease, not the short costs associated with making and selling drugs.
This piece originally appeared in U.S. News and World Report