For that you need to understand the cycle of drug development.
It is majorly divided in to two stage
Pre-clinical & Clinical.
Preclinical
1. Chemical research: Research is moderate contributor in cost.. The raw materials may not be too much costly.. But the factor which contributes the cost is level of success. Also the Physico-chemical evaluation is a costly business. Candidates for a new drug to treat a disease might theoretically include from 5,000 to 10,000 chemical compounds. On average about 250 of these will show sufficient promise for further evaluation using laboratory tests, mice and other test animals. Typically, about ten of these will qualify for tests on humans.
2. Testing on animals:Research is minimal contributor in cost.. About 5% of total candidates of molecules will get screened..
3. Formulation development: The drug discovered need to to be formulated in suitable dosage form tablets capsules injections, ointments, creams, drops etc depending on its purpose and properties of drugs.. This also include method development and associated cost with includes machines (one machine might cost up from 0.5 million to 2 million USD)
Clinical studies:
There are lots of expenses here. A single clinical trial can cost $100 million at the high end, and the combined cost of manufacturing and clinical testing for some drugs has added up to $1 billion. But the main expense is failure.
Why include failure in the cost? Right now, fewer than 1 in 10 medicines that start being tested in human clinical trials succeed. Some biotechnology companies do manage to make it to market without having to spend money on failed medicines but only because other startups went bust trying to test other ideas.
- Phase I trials, usually in healthy volunteers, determine safety and dosing.
- Phase II trials are used to get an initial reading of efficacy and further explore safety in small numbers of sick patients.
- Phase III trials are large, pivotal trials to determine safety and efficacy in sufficiently large numbers of patients.
- (Phase 4): These are post-approval trials that are sometimes a condition attached by the FDA, also called post-market surveillance studies.
After this comes the patent application and dossier submission.. The total cost may go up to 5 to 10 million.
The average cost of bringing a new drug to market is $1.3 billion if considered with fairly good success.
The average drug developed by a major pharmaceutical company costs at least $4 billion, and it can be as much as $11 billion.
Using the
cost of research to justify the prices of prescription drugs was always a dumb move on the pharmaceutical industry’s part.
Just because something was expensive doesn't make it good. And another:
many medicines are over-priced, but high-cost drugs are only a small part of our general health cost problem.
Medicines are just among the easiest products to scapegoat because their prices are easier to track.
Just to add to my previous post, RND spending of leading pharma companies
Company Number of drugs R&D Spending ) Total R&D approved Per Drug ($Mil Spending 1997-2011 ($Mil)
AstraZeneca 5 11,790.93 58,955
GlaxoSmithKline 10 8,170.81 81,708
Sanofi 8 7,909.26 63,274
Roche Holding RHHBY 11 7,803.77 85,841
Pfizer Inc. 14 7,727.03 108,178
Johnson & Johnson 15 5,885.65 88,285
Eli Lilly & Co. 11 4,577.04 50,347
Abbott Laboratories 8 4,496.21 35,970
Merck & Co Inc 16 4,209.99 67,360
Bristol-Myers Squibb Co. 11 4,152.26 45,675
Novartis AG 21 3,983.13 83,646
Amgen Inc. 9 3,692.14 33,229
