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I've referenced this Matthew Herper piece on the cost of drug development several times over the last few years. It's the one where he totaled up pharma company R&D expenditures (from their own financial statements) and then just divided that by the number of drugs produced. Crude, but effective - and what it said was that some companies were spending ridiculous, unsustainable amounts of money for what they were getting back.

Now he's updated his analysis, looking at a much longer list of companies (98 of them!) over the past ten years. Here's the list, in a separate post. Abbott is at the top, but that's misleading, since they spent R&D money on medical devices and the like, whose approvals don't show up in the denominator.

But that's not the case for #2, Sanofi: 6 drugs approved during that time span, at a cost, on their books of ten billion dollars per drug. Then you have (as some of you will have guessed) AstraZeneca (NYSE:AZN) - four drugs at 9.5 billion per. Roche (OTCQX:RHHBY), Pfizer (NYSE:PFE), Wyeth, Lilly (NYSE:LLY), Bayer (OTCPK:BAYRY), Novartis (NYSE:NVS) and Takeda (OTCPK:TKPHF) round out the top ten, and even by that point we're still looking at six billion a whack. One large company that stand out, though, is Bristol-Myers Squibb, coming in at #22, 3.3 billion per drug. The bottom part of the list is mostly smaller companies, often with one approval in the past ten years, and that one done reasonably cheaply. But three others that stand out as having spent significant amounts of money, while getting something back for it, are Genzyme, Shire (NASDAQ:SHPG), and Regeneron (NASDAQ:REGN). Genzyme, of course, has now been subsumed in that blazing bonfire of R&D cash known as Sanofi, so that takes care of that.

Sixty-six of the 98 companies studied launched only one drug this decade. The costs borne by these companies can be taken as a rough estimate of what it takes to develop a single drug. The median cost per drug for these singletons was $350 million. But for companies that approve more drugs, the cost per drug goes up – way up – until it hits $5.5 billion for companies that have brought to market between eight and 13 medicines over a decade.

And he's right on target with the reason why: the one-approval companies on the list were, for the most part, lucky the first time out. They don't have failures on their books yet. But the larger organizations have had plenty of those to go along with the occasional successes. You can look at this situation more than one way - if the single-drug companies are an indicator of what it costs to get one drug discovered and approved, then the median figure is about $350 million. But keep in mind that these smaller companies can tend to go after a different subset of potential drugs. They're a bit more likely to pick things with a shorter, more defined clinical path, even if there isn't as big a market at the end, in order to have a better story for their investors.

Looking at what a single successful drug costs, though, isn't a very good way to prepare for running a drug company. Remember, the only small companies on this list are the ones that have succeeded, and many, many more of them spent all their money on their one shot and didn't make it. That's what's reflected in the dollars-per-drug figures for the larger organizations, that and the various penalties for being a huge organization. As Herper says:

Size has a cost. The data support the idea that large companies may be spend more per drug than small ones. Companies that spent more than $20 billion in R&D over the decade spent $6.3 billion per new drug, compared to $2.8 billion for those that had budgets of between $5 billion and $10 billion. Some CEOs, notably Christopher Viehbacher at Sanofi, have faced low R&D productivity in part by cutting the budget. This may make sense in light of this data. But it is worth noting that the bigger firms brought twice as many drugs to market. It still could be that the difference between these two groups is due to smaller companies not bearing the full financial weight of the risk of failure.

There are other factors that kick these numbers around a bit. As Herper points out, there's a tax advantage for R&D expenditures, so there's no incentive to under-report them (but there's also an IRS to keep you from going wild over-reporting them, too). And some of the small companies on the list picked up their successes by taking on failed programs from larger outfits, letting them spend a chunk of R&D cash on the drugs beforehand. But overall, the picture is just about as grim as you'd have figured, if not a good deal more so. Our best hope is that this is a snapshot of the past, and not a look into the future. Because we can't go on like this.

Disclosure: None

Source: How Much To Develop A Drug? An Update