Tuesday, January 12, 2010

Pharmaceutical Facts 2009

Time to develop and market a new drug: 10-15 years

Average Cost to develop a new drug (2006): $1.318 billion

Total R&D spending on drugs in 2008: $65.2 billion

Generic share of market in 2007: 72%

Percent of marketed drugs that cover R&D costs: Only 20%

Total number of drugs approved in 2008: 31

R&D as a percent of U.S. sales: 20.3%

Average effective patent life for major drugs: 11.5 years

Medicines currently in development: 2,900 compounds

For every 5,000-10,000 compounds tested, the number that make it to clinical trials: 5

For every 5 compounds that make it to clinical trials, the number that get FDA approval: 1

Probability that a compound tested eventually gets FDA approval: .01% (1/100th of 1%, or 1 out of 10,000) to .02% (1/50th of 1%, or 1 out of 5,000)

Source:
Pharmaceutical Industry Profile 2009


17 Comments:

At 1/12/2010 12:25 PM, Blogger bobble said...

i understand that pharm companies need profits to pay for developing new drugs. but why is it that other countries are able to negotiate low drug prices such that US consumers are the only ones paying the high prices needed for drug development?

something seems very wrong here

 
At 1/12/2010 12:52 PM, Anonymous Rand said...

Because we are chumps. We (The United States people) subsidize the R & D for the pharmaceutical companies and the people in other countries don't.

 
At 1/12/2010 12:56 PM, Blogger Jason Woertink said...

Also Pharma companies generally have to accept the prices given to them by other countries because if they refuse to sell the drug there they threaten to invalidate their patents.

 
At 1/12/2010 1:07 PM, Anonymous geoih said...

Quote from bobble: "... but why is it that other countries are able to negotiate low drug prices ..."

Because if pharm companies don't give other countries what they demand, then the other countries will simply nationalize the drugs and have other companies make the generic version and the pharm companies will get absolutely nothing for their development work.

Once government takes over all of the health care system in the US, then the same situation will happen here, and the pharmceutical industry will become like the Post Office, Amtrak, and the public schools.

 
At 1/12/2010 1:08 PM, Anonymous Anonymous said...

bobble,

The other countries that are able to negotiate lower prices simply place a hard cap on what they're willing to pay. Because the marginal cost of producing a dose of medicine is quite low, even this low price offered means a profit. Think of it like a blue-plate or early-bird special. They have the product and selling it at a discount as long as it's over cost means showing a profit.

 
At 1/12/2010 1:23 PM, Blogger Hey-nonny Bosh said...

One wonders how the relative top-line revenues (and bottom-line profits) compare. Another interesting comparison might be drug expenditures & costs per capita. Could be that "other countries" pay a higher *percentage* (or other relevant stat) to moderate the general "why do WE pay more?!" question.

 
At 1/12/2010 1:24 PM, Blogger Hey-nonny Bosh said...

In the above, I mean "by country" revenues/profits/costs. But you knew that...

 
At 1/12/2010 1:36 PM, Anonymous Lyle said...

One might also add that other countries do not have as much drug advertising. It would be interesting to compare the add expense to the research expense. While likley not the whole it would be a large amount. People pay for all those adds suggesting that they have some disease that there is a pill to fix.

 
At 1/12/2010 2:18 PM, Blogger OA said...

I think the distribution overhead costs come into play as well. I've never walked into a pharmacy that was overwhelmed by the customers.

I'm sure it's more cost effective having extra staff than taking the chance that someone rushes a prescription and makes a mistake. It a job where an innocent mistake can easily turn into jail time.

And they have to have the same reimbursement overhead as a doctors office. On top of the regulatory and drug changes they have to stay of top off.

If you have a plan where they will mail a 90 day prescription, it's usually much cheaper than a 1 month prescription at a pharmacy. That has to be due to the overhead they're cutting out.

 
At 1/12/2010 2:31 PM, Blogger Bloggin' Brewskie said...

This is completely off subject, but keep an eye on this huge discovery.

 
At 1/12/2010 3:21 PM, Anonymous gettingrational said...

The Pharma companies will lose between 10 and 20% revenues world-wide this year due to counterfeitting. Bio Spectrum Asia has an article that staets 30% of pharma drugs sold are counterfeit.

The costs are enormous to develop these drugs and the counterfeitting problem is growing quickly for a variety of reasons. This is an intellectual property (IP) issue for the U.S. and its trade associates that needs tough action immediately.

BTW, the source for the information was Robert Bates from the American Enterprise Institute.

 
At 1/12/2010 4:36 PM, Blogger Rick Caird said...

There seems this great fear of drug advertising. Think about it though. No one advertises unless they think the advertising brings in more revenue than the cost of advertising. Second, the advertising is useful to get some people to recognize their symptoms and actually go to the doctor.

An earlier anonymous commenter pointed out that drug companies will sell ad a greatly reduced price to other countries. That is because the cost of the first pill is $1.3 billion dollars. The next one is about a dollar. The US is paying for all the R&D.

Importing from Canada will not work. The drug companies will simply ration the supply to Canada and Canada will cooperate by discouraging the export of drugs to the US. They will do this out of their own self interest. If they don't, their price will have to rise.

 
At 1/12/2010 7:51 PM, Anonymous Ian Random said...

Of course Public Citizen hates those numbers. They insist on only looking at domestic expenditures and reducing the amount by the tax avoided to come-up with about $428 million on 2009 for a product. They don't seem to like the "ME-TO" drugs which are not guaranteed to be approved if the FDA considers the market saturated.

I suspect that Rand is complaining about a subsidy to encourage drug development for kids.

 
At 1/12/2010 11:54 PM, Anonymous Anonymous said...

So much of the problem with the high cost of drugs in the US is because the cost of development is borne by the US because other countries' governments limit profits and take over intellectual property (patents) if the drug companies don't cooperate.

So government is the problem - for once though, it isn't ours.

Seriously, isn't this illegal constraint of trade for which complaints should go before the WTO? Or is the WTO worthless?

 
At 1/13/2010 12:44 PM, Blogger Patrick said...

So should the U.S. impose tariffs on countries that threaten to or succeed in circumventing intellectual property rights on prescription drugs? There are many posts on this blog that support free-trade. Is this a case where a tariff is warranted? Also, if tariffs don't come into play why aren't foreign companies getting in on the "gold rush" of selling drugs to the U.S. consumer at exorbitant prices. FDA enforced barriers to entry perhaps?

 
At 1/13/2010 2:13 PM, Blogger Hey-nonny Bosh said...

Said differently (or the same, really: someone else alluded to this): The US is the main market; other countries are simply sources of marginal profit.

 
At 1/17/2010 5:36 AM, Anonymous Cosep said...

Situation 1:

You have a terminal illness.

I have created and hold a pill which will cure your illness. How much would you be willing to pay me for it?

The correct answer is likely close to the total of all your liquidated assets plus everything you could possibly borrow, minus a reserve to maintain a minimally bearable quality of life.

Situation 2:

You have a terminal illness. You are given the cure pill as a right. You take it and swallow it.

Now I ask you how much you are willing to reimburse me for producing your lifesaving pill.

Your answer is that you had a "right" to the pill and you are willing to pay almost NOTHING. Even the most appreciative and generous of survivors would pay FAR LESS than the pill was actually worth to them. They wouldn't liquidate ANY valuable assets.

Situation 1 is capitalist. It represents economic reality and provides the maximum incentive to INVENT the cure pill in the first place. It ensures that risk and resource costs are adequately compensated.

Situation 2 is socialist and represents the warped leftist view of reality and provides no incentive to invent the cure pill. Risk taking is punished and therefore is never undertaken. Resources costs are not covered, so the producer runs an economic deficit. It cannot continue this in the long run.

In Situation 2, the pill never exists and you DIE. If the pharmaceutical company makes the mistake of producing the pill for one disease, they will never make the mistake again for another disease.

Socialism = Death, but the deaths attributable to socialism are largely uncountable. You suffer and die from the goods and services NOT provided.

The "right" to affordable goods doesn't benefit you when the shelves are empty.

 

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