By NextBestFitR&D is funded by high prices, which ties innovation to unaffordability
The industry spent $83B on R&D in 2019, about a quarter of net revenue, and developing a new drug costs roughly $1–2B+ including failures. Lowering prices lowers expected returns and the number of new drugs.
Evidence
- $83B industry R&D (2019); expected cost per new drug from under $1B to over $2B.Sources: Congressional Budget Office (2021)
- A narrower negotiation policy was estimated to mean about 8 fewer of ~300 new drugs in a decade.Sources: Congressional Budget Office (2019)
Who's affected
Who is hurt
- People with ongoing or specialist care needs: High prices make current treatment less affordable.
- People who will need care in the future: Price cuts without replacement research funding can reduce the development of new drugs.
Who gains while it lasts
- Drug and device makers: High prices fund research and support expected investor returns.
Under your mix of paths
Paths that fix or soften it
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Root causes
- Private financing of risky R&D recovered through monopoly pricing
Related costs
Open questions
- How should drug R&D be paid for: high prices, public funding, prizes, advance purchase commitments, or a mix?
Solution paths (3)
Open a path for what it fixes, what it creates or worsens, who gains and who loses, precedents, and how it connects to other paths. See all paths as a decision tree.
Increase NIH and public trial funding, especially for late-stage trials, so innovation relies less on high prices.
- +R&D is funded by high prices, which ties innovation to unaffordability
- −Raises spending or loosens control over it
- −Government chooses which research gets funded
Pay large prizes or guaranteed purchases for drugs meeting set goals (e.g., new antibiotics), then sell at low prices.
- +R&D is funded by high prices, which ties innovation to unaffordability
- +Brand-name drug prices far above production cost
- −Depends on uncertain evidence or judgments
- −Government chooses which research gets funded
Pay high prices only for drugs with large added benefit; pay little for me-too drugs.
- +R&D is funded by high prices, which ties innovation to unaffordability
- +Brand-name drug prices far above production cost
- −Adds paperwork, coordination, or complexity
- −Depends on uncertain evidence or judgments
- −Central coverage decisions can feel like rationing