InnoThink Center For Research In Biomedical Innovation puts the number at $4 billion.
For years, the biopharma industry has said that it takes about $1 billion to bring a drug to market based on an estimate from the Tufts Center for the Study of Drug Development. That estimate rose last year to $1.3 billion; it wasn’t too long ago that the number stood at $800 million.
Some other sources paint a much pricier picture of drug development. Nature Medicine’s blog, Spoonful of Medicine, on February 10 reported a $4 billion drug R&D estimate from the InnoThink Center For Research In Biomedical Innovation . The higher estimate reflects an adjustment to the Tufts number that InnoThink says factors in money spent on drug failures. InnoThink Center founder Bernard Munos, a former corporate strategy advisor at Eli Lilly until 2010, told Matthew Herper of Forbes, that when each drug company’s R&D budget is divided by the average number of drugs approved, the numbers run into higher billions of dollars.
To Herper’s credit, he and Forbes colleague Scott DeCarlo tallied Munos’ count of approved drugs per company, then tallied R&D spending for each big pharma and biotech giant stretching back 15 years, using a Thompson Reuters database via FactSet, and finally adjusted the figures for inflation. The 15-year tally of R&D budgets was also designed to account for short-term spikes in R&D spending.
The results are eye-popping. Amgen emerges as the most efficient big biopharma with average R&D spending per drug of $3.692 billion. Following Amgen is Novartis at $3.983 billion. The remainder of the field, in order of ascending R&D spending, is Bristol-Myers Squibb, Merck & Co., Abbott, Eli Lilly, Johnson & Johnson, Pfizer, Roche, Sanofi, GlaxoSmithKline, and most-expensive AstraZeneca at a stunning $11.791 billion.Maybe that explains AstraZeneca’s February 2 announcement that it will shed 7,300 jobs worldwide—raising to about 30,000 the number of jobs it has eliminated over the past five years.
As for the Tufts estimate long cited by industry experts and regulators, Herper dismisses it by noting Tufts’ funding by pharma companies, then suggesting that industry wants to tamp down the estimate for its own purposes. “It’s a nice number for the pharmaceutical industry,” argues Herper, “because it seems to justify the idea that medicines should be pricey (and increasingly, they can be very price, costing tens of thousands of dollars per patient per year) without making it seem that inventing new medicines is so expensive an endeavor as to be ultimately futile.”
But in presenting a much higher estimate, Munos advances his own counter-industry line of thinking, which Herper presented in a long profile of the InnoThink founder last August—namely, that the time has come for big biopharma to slash R&D spending and farm out research to smaller companies more willing to work on more game-changing breakthroughs, rather than the incremental innovation wrought by the status quo.
Some key industry players have embraced parts of Munos’ thinking. Companies like GlaxoSmithKline, Merck & Co., Pfizer, and Roche have made dramatic cuts in R&D in recent years. They now rely more than ever on smaller partners for innovations, in hopes of better recouping more from all the money spent on drug development.
Yet an R&D effort focused on big-blockbuster breakthroughs should not do so at the expense of incremental advances, since the industry’s presumed goal is to save lives, or at the very least improve them, through new medicines. Industry will have to learn how to adjust R&D spending to produce both big and small breakthroughs. Decisions on farming out research or doing it in house should be made on the strength of the company rather than rigid rules.
InnoThink’s numbers and the elaboration by Forbes serve as valuable contributions to the debate over how to measure drug development costs, and how, over time, to cut the staggering numbers those measurements have produced.
You can read the full chart and all the numbers from Forbes here.