October 21, 2015

4 Charts Explain the Economics of Drug Development

This article was originally posted on the U.S. Chamber’s Above the Fold. Photo credit J.B. Reed/Bloomberg.

Why can something as small as a pill you pop into your mouth sometimes cost so much?

The answer is all the science, innovation, inventiveness, creativity, perseverance, and investment that allowed that little pill to come into existence.

Explaining that story is a challenge for the pharmaceutical industry. “It’s not a simple thing to explain a long-term cycle” of drug research and development, said Bayer president Philip Blake at the U.S. Chamber’s 4th Annual Health Care Summit. “We have to do a better job of articulating that health care is a very complicated thing.”

It’s not just the science that goes into developing medicines that’s complicated. The economics that drive the industry, allowing resources to be available so people can have access to beneficial, new medicines, is complicated too.

Here are four charts from the Pharmaceutical Research and Manufacturers of America (PhRMA) to help tell the story.

1. It takes 10 years and $2.6 billion to bring a single drug to market.

The pharmaceutical industry makes “thousands of attempts” to “find one molecule,” Blake said.

2. In 2014, pharmaceutical companies spent $51.2 billion on R&D.


Since 1994, PhRMA member companies increased their R&D spending by 237%.

3. But only a few drugs are commercial successes.

Sales from only a few approved drugs have to cover R&D investments for the entire industry, Blake said.

4. This investment results in people living longer.

The President’s Council of Advisors on Science and Technology wrote in a 2012 report:

While nutrition, sanitation, other public health measures, and expanded access to care have been major sources of increasing human health, innovative medicines have also played a profound role in this progress.

Protecting intellectual property rights is a crucial component for pharmaceutical innovation, as Mark Elliot, Executive Vice President of the Global Intellectual Property Center (GIPC) writes:

For example, economies with supportive life sciences regimes experience roughly 2-6 times more biopharmaceutical R&D investment than do countries whose IP systems lag behind. In order for countries to attract this investment, strong IP protections, oftentimes made possible by trade agreements, must be in place.

You can learn more about the importance of IP to life sciences and other industries at GIPC’s 3rd Annual Global IP Summit November 5-6.

Sean Hackbarth is Senior Editor of Digital Content for the U.S. Chamber of Commerce.

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