As mentioned, that's a hugely suspicious "fact". As noted by the National Center for Biotechnology Information.
"In the March 2003 edition of the Journal of Health Economics, a trio of economists from the United States wrote about a number. Soon after, that number began popping up all over the place — in newspapers and political speeches, on television and the Internet. But the figure, despite reaching near-canonical status, drew criticism. Some said it was inflated. Less diplomatic detractors said it was a 9-digit fairy tale.
That number was 802,000,000. It was, according to the 2003 study, the number of US dollars that pharmaceutical companies spent, on average, to bring a new drug to market (J Health Econ 2003;22[2]:151-85). Now there are new numbers. Some health economists peg the current cost of drug development at US$1.3 billion, others at US$1.7 billion."
Key point: the data used to come up with the original number came from an industry financed source and was not made public. And here's a bit more coverage that throws additional cold water on 10 figure costs.
I agree that the numbers thrown around are often a lot of hand waving. However, let me make a few points few points.
1. Check out the Tufts Center for the Study of Drug Development. They calculate the cost to create a new drug and their methodology is very transparent.
2. You can do a simple sniff test on these numbers. Simply call up a CRO that runs clinical trials and ask "What will it cost me to run a Phase III clinical trial?" I did this recently for a project I was working on. They will freely give the numbers about since they are all in competition with each other.
This is what a recent survey of CROs found[1]:
"As for the average per-patient trial costs across all therapeutic areas, in Phase I, costs rose from $15,023 in 2008 to $21,883 in 2011. In Phase II, the cost rose from $21,009 to $36,070. In Phase IIIa, the cost increased from $25,280 to $47,523 and in Phase IIIb, cost jumped from $25,707 to $47,095. Finally, Phase IV expenses rose from $13,011 to $17.042."
Let's do some simple calculations. 1000 patients, 1 year trial. You need to complete two Phase III trials to keep the FDA happy.
1000 patients * $47,000 * 2 = $94M
And that's only for phase III trials. Add in the cost of discovery, pre-clinical work, formulation, Phase I, Phase II, all the paperwork with the FDA.
OK, great, now you're approved, you still need to actually make the drug which includes scale-up, testing, FDA certification of the manufacturing process, packing and distribution.
When I was working at a big pharma company, I heard about a new manufacturing site they had built in anticipation of a really big drug being approved. The cost? Several hundred million dollars. What happen when the drug got rejected by the FDA? The manufacturing site was written off (couldn't really be used to make anything else).
1) How do they keep them high? They are buying these services from a third-party.
2) These cost of clinical trials is increasing because FDA evidence requirements are getting stricter and stricter. Back in the 1950s, you could get a drug approved in under 2 years. Now? It's more like 5-8 years. Of course, you end up with much safer drugs this way.
Considering drug companies are always fighting with the FDA to do the bare minimum in terms of clinical studies, I would fathom to guess that your theory can't be supported with the existing evidence.
I have heard that drug patents are trivially circumvented by adding some irrelevant part to the active molecule. Instead it is the FDA approval process that prevents ripoffs.
Doesn't that mean pharma is the one industry where patents could be abolished with literally no consequence?
It is true that you can get around a patent by creating a slightly different molecule. However, drug companies aren't stupid. When they patent a drug, they are patenting a pretty big space around their molecule of interest. Pretty much every modification you can think of, they will patent. The resulting patents aren't just one molecule but rather an IP "space".
That doesn't follow. If patents were abolished companies that spent nothing on development would be able to produce the exact drug that the FDA had approved.
You know what else will drive up the costs? Running bad trial after bad trial after bad trial, burying the results, and only publishing if and when you finally come up with something positive.
Not only does this provide a dangerously (murderously?) distorted view of the compound in question, it means patients (read: victims) will be paying exponentially more for their "treatments".
It's an increasingly sordid business, and not one that can be defended in good conscience. As the Economist notes in its current review of "Bad Pharma" "This is a book that deserves to be widely read, because anyone who does read it cannot help feeling both uncomfortable and angry."
As mentioned, that's a hugely suspicious "fact". As noted by the National Center for Biotechnology Information.
"In the March 2003 edition of the Journal of Health Economics, a trio of economists from the United States wrote about a number. Soon after, that number began popping up all over the place — in newspapers and political speeches, on television and the Internet. But the figure, despite reaching near-canonical status, drew criticism. Some said it was inflated. Less diplomatic detractors said it was a 9-digit fairy tale.
That number was 802,000,000. It was, according to the 2003 study, the number of US dollars that pharmaceutical companies spent, on average, to bring a new drug to market (J Health Econ 2003;22[2]:151-85). Now there are new numbers. Some health economists peg the current cost of drug development at US$1.3 billion, others at US$1.7 billion."
Full article here.
http://www.ncbi.nlm.nih.gov/pmc/articles/PMC2630351/
Key point: the data used to come up with the original number came from an industry financed source and was not made public. And here's a bit more coverage that throws additional cold water on 10 figure costs.
http://www.theglobeandmail.com/life/health-and-fitness/drug-...
While the actual costs remain unknown, it's a safe bet that they're nothing like the inflated figures being circulated by the industry.