The Surprising Cost of Making a New Medication (and why you’re emptying your pockets to pay for insulin)


It’s easy to completely resent the out-of-pocket price for most medications these days. When I didn’t have health insurance during and for two years after college, paying over $100 for one vial of Lantus (thus, $1200 per year just for my Lantus insulin) was painful. A box of test-strips was in the realm of $75 and having to decide whether to test my blood sugar often for my health or test as little as possible for my bank account was always staring me in the face. (Fortunately, don’t worry, thanks to friends and discounts, I was able to choose my health without going totally broke.)

Do those big pharma companies really need to charge over $100 for one vial insulin? Where is that money going? To the expensive and immense parties I’ve heard about from friends who worked in pharmaceutical sales positions?

Bruce Booth, a contributor at Forbes.com, recently reported on “exactly” what it does cost a pharmaceutical company to create a new drug. Bear in mind he is use calculated estimates:

The cost of making a new drug has grown to nearly $2.6B, according to the latest and greatest from Tufts Center for the Study of Drug Development (here).  That’s a big and almost unfathomable number.  Critics immediately pounced on it, calling anyone who believed it a flatlander (here), and suggesting that the cost, with failures, was closer to $150M.  Tufts’ number appears incredulous, but the critics paltry number even more so.

Last time I weighed in on this subject back in 2011, an article in Slate suggested that the cost of a drug was $50M.   I put out a model so that readers could “choose their own adventure” and play with the assumptions around drug R&D (here).  It provoked some good commentary and engagement.

Booth explains the different factors in determining the heavy price tag of a new drug:

  • “the direct costs of moving a drug forward”
  • “paying for failures along the way”
  • “the time value of money”

…and then he breaks down the process of bring a drug from it’s initial creation to a container sitting in your bathroom cabinet:

Looking at these numbers, I find myself in an awkward position of feeling as though I almost understand why pharma can charge more than $1.50 per test strip even though the production of that strip itself costs barely 10 cents…and surely, by now, they’ve recouped the millions of dollars they spent to create that test strip through sales to the millions of us who need those test strips. Again, I find myself feeling both frustrated and understanding that these companies need to make a profit, need to pay employees, need to profit from existing medications and technology so they have further funds to create new medications and technology.

Booth estimates that pharma as a whole spends over $100 billion simply in research and development (R&D), in the constant pursuit of the new drug that will put their brand at the top of the list when doctor’s determine a treatment protocol for their patients.

It isn’t rare to see rants and complaints directed at the FDA over how long it takes for new medications and technology to get approved, but part of our wait is the very necessary testing, testing, testing through a number of studies as pointed out by Booth. Do I want a drug to make it to the market before it’s been thoroughly tested for safety and efficacy so I can get it more cheaply? At the risk of…my health? My life?

In the end, the process isn’t simple. It isn’t straight-forward. And it is very costly.

“Most practitioners in the field agree on the general rather than specific conclusion: the cost to bring a drug to market is big – very big – especially when accounting for all the failed attempts,” says Booth. “If we want to reduce this number, the solution is simple – just do things better, faster, and cheaper.  Back to work.”

One thought on “The Surprising Cost of Making a New Medication (and why you’re emptying your pockets to pay for insulin)

  1. There are many reasons drug prices are high in US. Research and development is a small part of it, although it is mentioned quite often as an excuse. New approaches on how to develop new drugs have the potential to lower the R&D costs while contributing more to the development of new and life-saving medicines

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