Last week, pharmaceutical company Roche announced that it was scrapping work on a once-promising cholesterol medicine at the recommendation of its independent data and safety monitoring board. Had the drug proven successful, it would have likely delivered sales of a billion dollars a year. Instead, Roche lost millions researching something that will never reach patients.

This episode underscores just how difficult and expensive the innovation process for drug-development is.

Not that anyone in the Obama Administration has noticed. Obamacare will hit pharmaceutical firms with more than $20 billion in new taxes over the next ten years. Some firms may conclude that they can’t shoulder both a hefty tax bill and the risk of a multimillion-dollar research failure.

That would be tragic news not just for patients waiting for cures but for the American economy, which benefits tremendously from the massive sums that pharmaceutical companies sink into research and development.

Last year, the pharmaceutical industry spent $49.5 billion on R&D. Just 36 new drugs achieved approval from the Food and Drug Administration (FDA). That’s an average of nearly $1.4 billion per drug.

Among those chosen 36 were two new personalized medicines that treat lung cancer and melanoma as well as two that address Hepatitis C in a completely novel way. Patients with rare diseases now have 11 new treatments at their disposal, while those with lupus were greeted with the first new treatment for the disease since 1955.

Huge research expenses are part and parcel of the pharmaceutical business. Since the late 1980s, the percentage of sales that pharmaceutical companies spend on R&D has remained constant. So as sales have gone up, so too has the amount devoted to research.

Despite the high price tag, those research expenses have paid exponentially bigger dividends for society. A Congressional Budget Office report notes that “[A]necdotal and statistical evidence suggests that the rapid increases that have been observed in drug-related R&D spending have been accompanied by major therapeutic gains in available drug treatments.”

Some critics of the drug industry claim that its high research expenses are wasteful — that they go to discover the next Viagra.

But of the 3,200 medicines currently in clinical trials or FDA review in the United States, some 900 target cancer, 300 fight heart disease and stroke, and another 100 address Alzheimer’s. About 460 drugs are in development for rare diseases — a 50-percent increase from 2007.

Others believe that pharmaceutical companies charge too much in order to recoup their front-end research outlays — and are therefore accelerating the growth of the cost of health care.

But according to the Office of the Actuary at the Centers for Medicare and Medicaid Services, drug spending grew just 1.2 percent between 2009 and 2010. That’s lower than the overall economy’s inflation rate — and the lowest growth rate for pharmaceuticals since data collection began in 1960.

Pharmaceutical spending isn’t expected to grow much over the next few years. The IMS Institute for Healthcare Informatics forecasts that the average annual growth rate will remain between 0 and 3 percent through 2015.

Further, new drugs can actually reduce medical costs elsewhere in the healthcare system. A paper from the National Bureau of Economic Research found that Medicare ultimately saves $2.06 for every dollar it spends on medicines. Columbia Professor Frank Lichtenberg estimates that $7.17 in hospital costs are saved for every dollar spent on newer pharmaceuticals.

A 2005 study published in Medical Care found that every additional dollar spent on medicines for diabetes, blood pressure, and cholesterol shaves $4 to $7 off other medical spending.

That makes sense. After all, a daily cholesterol-lowering pill is much cheaper than emergency heart surgery.

New cures can also help the broader economy. Not only do R&D expenses directly create jobs — successful drugs can free up caretakers for more productive pursuits. For instance, the cost of caring for those with Alzheimer’s and other forms of dementia will reach $200 billion this year — and $1 trillion by 2050. A new treatment that could delay the onset of Alzheimer’s by five years would decrease the prevalence of the disease by 43 percent and save $447 billion by 2050.

Roche’s failed cholesterol drug is only the latest example of the huge financial risks inherent in drug development. Lawmakers should remember these expensive failures before they try to squeeze every last dime out of supposedly flush pharmaceutical firms.

If they don’t, there may be no more money to spend searching for cures — and those waiting patiently for relief may be out of luck.

Source: http://www.forbes.com/sites/sallypipes/2012/05/14/not-that-the-obama-administration-has-noticed-but-drugs-are-expensive-to-develop/