Pharmaceuticals

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

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IBT

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.

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  1. Insert Huey Lewis joke here.

    1. It’s hip to be square?

      1. That’s the power of drugs?

        1. No, no, you need a new drug.

          1. Gotta get [FDA approval] back in time [to realize a profitable return on R&D investments]

          2. One that won’t make you Warty?

            1. Well it is hip to be square.

            2. Damn it, that was supposed to be:

              Well it is hip to be square. Like Warty’s penis.

              1. I thought that was pentagonal…and barbed.

    2. Do you like Huey Lewis & The News? Their early work was a little too ‘new-wave’ for my taste, but when Sports came out in ’83, I think they really came into their own ? both commercially and artistically. The whole album has a clear, crisp sound, and a new sheen of consummate professionalism that really gives the songs a big boost. He’s been compared to Elvis Costello, but I think Huey has a far more bitter, cynical sense of humor. In ’87, Huey released this, Fore, their most accomplished album. I think their undisputed masterpiece is ‘Hip To Be Square’, a song so catchy most people probably don’t listen to the lyrics ? but they should! Because it’s not just about the pleasures of conformity, and the importance of trends, it’s also a personal statement about the band itself!

      1. +1 Plastic Sheet

      2. Cool story, bro

        1. SPOILER: The story was all just in his imagination.

  2. At least you can be consoled knowing that central bank induced inflation has played no small part in that increased cost. So it’s not all attributable to the murderous ignorance of bureaucratic meddling. Libertarians rejoice!

  3. Part of the GOP anti-Obamacare attack should be to highlight this. The core issue is not really the cost insurance or who pays for it, but the cost of health care. They should be taking about reforms that bring down costs: reforming the FDA. Banning certificate of need requirements. Eliminating insurance mandates. Allowing insurance sales across state lines. Allowing pharmacists and nurses to do more. Letting Apple and Google and the rest of Silicon Valley tackle health care costs with innovation. Down with central planning! Let a thousand flowers bloom!

    The GOP could get support from techies, alternative medicine types, and many more if they were smart enough to take this approach.

    1. Not enough opportunity for graft.

  4. Okay good use of alt text, but minor quibble the actual lyric is: the ones that mother gives you don’t do anything at all.

    And yes it dates me, but White Rabbit was the first single record I ever bought with my own money.

    1. BSA: My apologies for the garbled lyric.

      1. No biggie, I’m sure the Millenials have no idea what song you were referencing ’cause it was like a really long time ago.

        1. We should poll them.

        2. Is it something by Kanye?

          I bet it’s Kanye.

    2. I think “Somebody to Love” is an amazingly timeless record. With a slightly different mix, you could pass it off as a contemporary recording.

    3. First record I bought with my own money was Appetite for Destitution.

  5. Another example of government job creation.

    YAY!

  6. But what is the value of a single human life?? Certainly $2.8 bn is not too much to ask.

    /s

    1. at this point,what does it matter

  7. A billion here, a billion there, pretty soon, you’re talking real money.

  8. This is why so many drugs are just bought out by the big boys once they meet critical points in the development stage. Such and such a drug passed Phase X trials, and it becomes a lot more valuable.

    This is why the little companies around San Diego and other biotech centers can’t develop drugs independently–large pharmaceutical companies can almost be seen as mutual funds of drugs that way.

    Where a private equity firm might invest so much money in new tech company in anticipation of taking it public someday, pharmaceutical companies invest billions in buying out promising drugs from small start ups.

    …but they’re much more risk adverse than a lot of private equity firms would be because the start up costs are so high. When you see it takes $2 billion to develop a drug that makes it to market, it may still take $750 million to fail miserably.

    Start ups can’t generate that kind of income internally, and only large pharmaceutical companies have both the bank and the expertise to rationally take on that kind of risk. And even then, the big pharmaceutical companies tend to morph into consumer products companies. Pfizer, Johnson & Johnson, Bayer, and Merck aren’t were people are looking for exciting new products anymore. For them, it’s all about trying to take over smaller companies with more promising pipelines–rather than developing their own.

    http://www.reuters.com/article…..KB20141118

    1. such a drug passed Phase X trials

      What’s Phase XI, human testing?

      1. I think Phase X was the name of Racer Ten’s car.

        http://en.wikipedia.org/wiki/Racer_X_(character)

    2. Buying the pipeline is standard practice. My former employer bought only drugs that were late in Phase II trials, and built such a good pipeline that we were bought by a larger company who only wanted our pipeline.

      I got a job at the new company, and on my first day we all got to head to the cafeteria to hear the CEO announce that we had just been bought out by an even larger company.

      Fortunately, the larger company only claimed to like our pipeline, when they were really interested in our status as a company incorporated in Ireland. When Obama changed the rules on tax inversions, the deal fell through.

      Thanks, Obama!

      1. I hate Barack Obama for screwing up so much…

        There are a few things we do really well. Biotech/pharma is one of them. Those are high paying, growth jobs.

        China can run assays cheap or do sequencing cheap–but that whole Biotech Beach area? That grows up organically. The Chinese (and others) can’t recreate that just by decree or throwing money at it.

        It was more or less the same thing on Wall Street. Those were high paying jobs Obama was driving offshore with his “executive pay” witch hunt. We want high paying jobs, don’t we Mr. President?!

        There’s no reason why investment banking has to be done in New York and can’t be done from London or Singapore.

        With biotech and pharma, I’m not sure there’s anywhere to drive them off to. You just end up killing R&D and biotech as a growth engine. And there’s no good reason to do that–he just has no idea what he’s doing. It doesn’t even help him from a demagoguery standpoint.

        It was like the ObamaCare tax on new medical devices. He somehow thought that part of the problem with healthcare is that hospitals spend too much money on equipment when they should be making more beds available and hiring more nurses? That’s a fundamental lack of understanding about how the technology, market, and economy thingies work.

        Obama is a buffoon. How he came to be the president of anything is astounding.

        1. No, we want “Good paying” jobs. Which is enough to pay your taxes and buy your grog so you shut the hell up and don’t bother your betters in government.

        2. High paying jobs doesn’t mean what you think it means. It means something in the neighborhood of $60,000, maybe even a bit over $100,000. But $200,000? That’s obscene. No one needs a job that pays that well.

        3. “With biotech and pharma, I’m not sure there’s anywhere to drive them off to. You just end up killing R&D and biotech as a growth engine. ”

          Here is a great article, both for its commentary on Rhode Island, and its discussion of the biotech corridor next door in Mass:

          http://www.city-journal.org/20…..sland.html

          “New York and Boston have entrenched positions in high-value industries, partially buffered from market forces. Wall Street remains the center of the financial industry, and Fed policy has flooded New York’s economy with money. The Harvard- and MIT-anchored innovation complex powers the Boston-area economy. These cities have captive industries bound to their geography and large enough to operate at global scale. Their advantages let them get away, to some extent, with policies that would spell doom elsewhere. Money covers a multitude of sins. To the extent that surrounding metro areas can tap in to New York or Boston money, they do reasonably well. If they can’t, they face tougher prospects. “

      2. Did you go from Eagleview to the Land of the Hobbits, President Coolidge?

        1. Yes, I did. Correct on both counts. And you?

          1. My wife made the journey. Glad the sale fell through. We’re just trying to hold out here till our daughter finishes high school. I’ve avoided moving to Chicago several times.

  9. “Factors that likely have boosted out-of-pocket clinical costs include … greater focus on targeting chronic and degenerative diseases”

    These drugs are very difficult to test, given the paucity of patients available and the inability to use a large control group due to humanitatian concerns. But it is worth it. My previous employer sold a preventive medication for a rare genetic condition that cost $300,000 per patient per year. The total potential patient population in the US was estimated at 6,500. Once we reached 1,000 patients – which is made easier by the fact that there are usually no alternative treatments available – we were well able to afford the office Christmas party.

  10. Wait,you mean companies pass on the cost of their product AND try to make a profit?How can that be legal? MSNBC needs to get on this,’release the Maddow”

  11. 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.

    Can anyone in the know comment on how much, if any, these costs are exacerbated by FDA regulations (or similar), and how much of this is simply the natural result of already picking the “low hanging fruit” of easy-to-develop drugs and subsequently moving on to more complex drugs and diseases?

    1. The entire process is dictated by the FDA’s Good Clinical Practice regulations. Three Phases of trials – one for basic discovery, one of a product on animals, then a final stage with human subjects – are required. Each one involves extensive consultation with the FDA on what they expect, what they will accept, etc.

      The also perform on-site audits which require extensive compliance efforts both to be ready for when they show up and to put on a show when they do.

      As for low-hanging fruit, there are fast-track approval processes for drugs deemed to be in great need (an Ebola vaccine, for example). And once the original patent protection is lost, approval of a generic requires a much less extensive testing process.

      If we abolished the FDA tomorrow, it wouldn’t change much because the European Medicines Agency has nearly identical regulations, harmonized with those of the FDA and regulatory agencies in the ROW.

      The regs have been around a while, and the pharma industry is not without political influence, so they are not as ridiculous as you might expect. Many trials are conducted in India because they don’t have the same extensive patient protections. More people die, and companies are sometimes caught covering this up, and you can’t get US approval for the drug unless the FDA approves your trials first, but if you just want to sell in India it is much cheaper to do the trials.

      1. Thanks. So what would you say is best and most realistic way to reduce these types of costs, understanding that best and realistic are not necessarily the same thing?

        1. The best way is to focus on Phase I, and to improve the accuracy of computer simulations and similar design and testing performed before going through the expense of Phase II and Phase III trials. The article notes that 8.5 drugs, on average, have to be explored in order to find one that will eventually receive marketing approval. Reduce that failure rate by only a bit and you save a huge amount in the R&D budget.

          Another option is use of Baysian or similar likelihood models for your trials rather than standard “Null ypothesis, fixed sample size, 95% p-value” designs. This approach is becoming more popular for drugs to treat rare diseases, as test patients are harder to find and the drugs are so much more expensive to manufacture and administer.

          1. Another option is use of Baysian or similar likelihood models for your trials rather than standard “Null ypothesis, fixed sample size, 95% p-value” designs.

            I’m surprised this hasn’t already happened.

            1. Well, the FDA is more familiar with traditional models, so the tendency is to stick with what you know will be accepted without delays while you explain what you are doing.

    2. You’re asking for a bit of a non-sequitur;

      Put another way, this says more precisely that on average, you need to put 8.5 compounds into clinical development to get one approval.

      Vitamin C, D, and some exercise are pretty low hanging fruit. It’s phenomenally expensive to market them as a cure for a disease without a medical degree.

  12. Heaven forbid I or a loved one get stricken with a terrible disease. Then we will want all of the power Big Pharma can bring to bear on a cure. But this line of thinking never seems to cross the mind of the big pharma haters.

  13. my best friend’s sister-in-law makes $74 every hour on the internet . She has been out of work for six months but last month her payment was $19486 just working on the internet for a few hours. see this here ….

    ?????? http://www.payinsider.com

  14. “The price that patients pay for them is whatever the market will bear.” NOT!

    If the data regarding effectiveness of most drugs were not obfuscated by jargon and FCC restraint of free speech, more people would forego them. If insurance didn’t absorb most of the cost, people would choose cheaper and older, and thus better- understood and tested over time, drugs. If the FDA’s role were merely advisory, people would treat new drugs with well-deserved skepticism…and desperately ill people would be free to try that last-ditch new drug.

    In other words, free markets would be the most efficient way to allocate resources. Imagine that!

  15. Time costs (expected returns that investors forego while a drug is in development) of $1,163 million

    This is a bullshit “cost”. Just a way to make the numbers look bigger than they really are and the other average out of pocket cost no doubt includes the cost of development of the other 7.5 failures. Instead of blaming the FDA why not blame the companies management who wasted time and energy on all those failures.

    A perfect example is Pfizer’s Torcetrapid that was only cancelled due to a management shake-up. Previous management were seemingly willing to overlook the bad results of the drug because Pfizer’s pipeline was depleted.

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