You have to add the cost of testing drugs as a development expense. Even after the drug is fully developed, it has to be tested, which takes years and a ton of money. Also the development, and testing costs have to be paid years before any profit is received from a drug, and many times on drugs that produce no profit. Marketing expenses are much closer to the time the drug is sold, and have higher expectations of profit, so concerns about time value of money, and risk premium are much lower.
But how the marketing costs compare to the development cost is pretty much irrelevant. Marketing costs increasing doesn't make development cost any lower. If its expensive to market drugs thats just an additional expense that the profit from American consumers helps pay for.
Has R&D funding led to innovative discoveries of new drugs? The new drugs produced in 2002, for example, demonstrate that recent R&D has hardly fostered innovation. Of the seventy-eight drugs approved by the FDA in 2002, only seventeen contained new active ingredients. Furthermore, the FDA classified only seven of these as improvements over older drugs. The other seventy-one drugs were marginal variations of existing drugs (commonly referred to as "me-too" drugs). 5
New formulations of old active ingredients still cost money to develop, can be useful, and cost a lot of money to test. Also there was 17 approved drugs with new ingredients in 2002, and I suspect that that was a particularly low year considering the fact that it was picked to make the argument. |
