Drug Makers Are Leading the Way on R&D By Kenneth E. Thorpe
Over five million Americans suffer from Alzheimer’s disease. While a few drugs can temporarily alleviate symptoms, there’s no treatment that slows the progression of the underlying disease; so family members watch helplessly as their loved ones’ minds fade away.
Drug companies are determined to end this suffering. So far, 99 percent of Alzheimer’s clinical trials have failed, costing companies billions. Despite these repeated stumbles, firms are undeterred and currently have more than 70 potential Alzheimer’s treatments in development.
Despite these investments, some argue that drug companies aren’t devoting enough resources to research and development. The Institute for New Economic Thinking issued a scathing paper this summer. It condemns drug makers for buying back company stock and paying dividends to shareholders, rather than spending every available cent on research and development (R&D). The Institute urges the government to push aside these private companies and take a more active role in developing medicines.
This criticism is unfair — and the recommendation to elbow aside the private sector is dangerous. Without the hundreds of billions of dollars committed by private-sector researchers, it will be virtually impossible to cure Alzheimer’s, cancer and dozens of other scourges.
The pharmaceutical industry invests a much higher percentage of revenues into R&D than other sectors. The top 18 drug companies, according to the Institute, spent an average of 16 percent of proceeds on R&D from 2006 to 2015.
Compare that to the automobile industry. Despite the prevailing narrative of a «spare no expense» race to develop self-driving vehicles, the sector reinvests just four percent of revenues into R&D, according to consulting firm PwC.
Pharmaceutical companies’ investments have led to lifesaving therapies. Since 2000, the U.S. Food and Drug Administration has approved more than 550 new medicines.
The most impressive breakthroughs are yet to come.
Globally, more than 7,000 new treatments are in development. Seventy percent of these medicines use completely new methods to treat an illness. Consider CAR-T cell therapy, a technique that reengineers a patient’s own immune system to kill tumors. The experimental medicine, which received FDA approval in August, put many patients with advanced leukemia into remission during clinical trials.
It’s naïve to think that firms will continue making these costly, risky investments if there’s no chance of earning a return. Drug companies deliver enormous benefits to society, but they’re not charities. If they can’t offer investors a chance at attractive returns, they won’t be able to raise funding for future research.
The government is in no position to supersede these firms. Private R&D spending dwarfs the National Institutes of Health’s $32 billion budget. Given the political realities in Washington, does anyone seriously think the government is able and willing to exponentially increase funding for medical research?
Americas’ physical and financial health depends on continued private medical R&D. Currently, 40 percent of Americans suffer from a chronic illness. These diseases account for 90 percent of total U.S. health care costs.
New treatments and cures offer the best hope of tempering this spending. If pharmaceutical companies develop a new treatment for Alzheimer’s disease by 2025, Americans could save $220 billion by 2030.
Critics of the pharmaceutical industry say firms don’t spend all that much on research and development. If those accusations were true, who deserves credit for the hundreds of new medications that improve people’s lives and lower health care costs?