Cost to Develop New Pharmaceutical Is Now $2.6 Billion—Up from $800 Million, Says Study



The Tufts Center for the Study of Drug Development has just completed a new study estimating how much it costs to bring a new pharmaceutical to market. The Center's 2003 report estimated that the cost per new drug developed between 1983 and 1994 at $800 million. In the analysis, the Center uses data on a random selection of 106 new drugs developed by 10 pharmaceutical companies between 1995 and 2007 to calculate the current costs of getting a new drug across the regulatory finish line. From the press release:

The $2,558 million figure per approved compound is based on estimated:

  • Average out-of-pocket cost of $1,395 million
  • Time costs (expected returns that investors forego while a drug is in development) of $1,163 million

Estimated average cost of post-approval R&D—studies to test new indications, new formulations, new dosage strengths and regimens, and to monitor safety and long-term side effects in patients required by the U.S. Food and Drug Administration as a condition of approval—of $312 million boosts the full product lifecycle cost per approved drug to $2,870 million. All figures are expressed in 2013 dollars. …

Factors that likely have boosted out-of-pocket clinical costs include increased clinical trial complexity, larger clinical trial sizes, higher cost of inputs from the medical sector used for development, greater focus on targeting chronic and degenerative diseases, changes in protocol design to include efforts to gather health technology assessment information, and testing on comparator drugs to accommodate payer demands for comparative effectiveness data.

Lengthening development and approval times were not responsible for driving up development costs, according to DiMasi.

Genetic Engineering and Biotechnology News further reported:

At a briefing this morning to announce study results, DiMasi said the overall clinical approval success rate for new drugs, the likelihood that a Phase I drug will be approved for marketing, stood at less than 12% (11.83%). "Approximately seven out of eight compounds that enter the clinical testing pipeline will fail in development. Put another way, this says more precisely that on average, you need to put 8.5 compounds into clinical development to get one approval."

That less than 12% percentage rate was lower than a Tufts study four years ago "the higher failure rate had a substantial impact on R&D costs. Higher out-of-pocket costs of conducting R&D, and proportionately more failures in clinical testing are what really drove the increase in cost per approved new drug."

Whatever the costs for developing new pharmaceuticals, the price that patients pay for them is whatever the market will bear. That being said, if the prices don't cover the development costs, then there won't be more new drugs.

As I have explained earlier, one good way to lower costs is to reform the clunky hypercautious FDA regulatory system by moving toward conditional approval of new drugs after Phase II clinical trials.