Final answer:
The cost of developing a new drug can average $800 million, which includes R&D, safety testing, and marketing phases, with risks of loss if the R&D fails. High costs also derive from the inefficiency of drug production where significant material is lost. Competitive pressures can further erode the advantages of successful drug development.
Step-by-step explanation:
The question pertains to the cost of developing a new drug in the pharmaceutical industry. On average, it is stated that the development of a new drug can cost $800 million and often takes more than a decade. This exorbitant cost includes the research and development (R&D) phase, safety tests, and the process to bring the drug to market. Firms face high risks as they could incur losses or even bankruptcy if the R&D fails, as there is always a chance of failure. Moreover, if a drug is successfully developed, the firm's competitors might copy the idea without bearing the R&D costs, thus limiting the original company's competitive advantage.
Aside from R&D, another factor contributing to the high cost of new drugs is the loss of material during production. Often only a small fraction of the original material is converted into the purified drug product, exemplified by the reference to only one-fourteenth of material becoming the final pharmaceutical product. The efficiency of production processes and the use of costly chemicals are crucial areas of ongoing research to better control costs without compromising drug quality.