How much do life-saving drugs really cost?

Putting a price on a potentially life-saving drug can be challenging for both economic and ethical reasons. Drug companies can often spend mind-blowing sums of money developing drugs aimed at both saving lives and making a profit. Statistics from the Tufts Center for the Study of Drug Development suggested that the cost of developing a new drug now stands at $2.6b – up from $802m in 2003.

However, that number has not gone unquestioned.

It is undeniably a huge figure, but when one considers that roughly 80 per cent of new compounds included in this calculation are abandoned before even reaching the market, it starts to become more understandable. Unsurprisingly, research and development (R&D) does account for the bulk of the $2.6b figure – but not by as much as some might think. Roughly $1.2b is taken up by the cost of capital – that is to say that the money tied up in R&D could actually be spent elsewhere, especially given the aforementioned four fifths of compounds developed never reaching the market.

A factor not included in the calculations is that major pharmaceutical companies receive handsome R&D tax breaks – something many find unpalatable given that drug and biotech companies remain some of the most profitable across the globe.

In America – the world’s biggest spender when it comes to prescription drugs – there remains confusion following the attempts to abolish the Affordable Care Act, also known as Obamacare. Its proposed replacement, the American Health Care Act, sheds little light on how the cost of prescription drugs might fall, despite being one of its key goals. One big problem in the US is that the regulatory body, the US Food and Drug Administration (FDA), regularly comes under fire for not clearing a backlog of generic drug applications.

A year ago, the FDA had a backlog of more than 4,000, while the European Medicine Agency (EMA) had just 24 on its books. The median time for the FDA to approve a generic is currently 47 months, compared to 12 months for the EMA.

Another factor is competition. Countries such as Germany and the United Kingdom are seen as being far more proactive in promoting competition between products by extensive comparative effectiveness reviews and stringent cost-benefit analyses.

Speaking of the UK, the impending Brexit is – as with many issues – clouding the future of regulation. The giants of the pharmaceutical industry such as GlaxoSmithKline and AstraZeneca are lobbying hard against the creation of a British drugs regulator rather than relying on approval from the EMA.

Given that EMA approval automatically means clearance in all 28 EU countries, it is seen as a gold seal of approval. Whether a new British regulatory body would carry the same clout remains to be seen.