Per Drug Prices Soar, Prompting Calls for Justification (NYT, July 23, 2015), while opaque and seemingly arbitrary drug pricing deserves immediate attention, the value of innovation must not be ignored. Innovation is hard. Today it takes about 10,000 new molecules to produce one FDA-approved medicine. This observation itself is disconcerting, but, further, only 3 out of 10 new medicines earn back their R&D costs. Moreover, unlike other R&D-intensive industries, biopharmaceutical investments generally must be sustained for over 2 decades before the few that make it can generate any profit. Innovation is slow. As any medical scientist will tell you, there are few “Eureka!” moments in health research. Progress comes step by step, one incremental innovation at a time.
Biopharmaceutical companies more often profit by improving existing molecules and making processes more efficient than by revolutionizing the whole field with new miracle products. Discontinuous innovation (such as the recent breakthroughs in Hepatitis C) is a wonderful exception to the rule. As Harvard University health economist David Cutler has noted, “Virtually every study of medical innovation suggests that changes in the nature of medical care over time are clearly worth the cost." When it comes to drug pricing it's important to look at the whole picture.