Cost to Develop and Win Marketing Approval for a New Drug Is $2.6 Billion
- R&D costs of 106 new drugs were obtained from a survey of 10 biopharmaceutical firms.
- Costs for compounds that were abandoned were linked to costs of approved compounds.
- Pre-tax out-of-pocket per approval is $1395 million (2013 dollars).
- Pre-tax capitalized per approval is $2558 million (2013 dollars).
- Total capitalized costs were found to have increased at a real annual rate of 8.5%.
- With post-approval R&D costs the estimate increases to $2870 million (2013 dollars).
From the press release:
BOSTON – Nov. 18, 2014 – Developing a new prescription medicine that gains marketing approval, a process often lasting longer than a decade, is estimated to cost $2,558 million, according to a new study by the Tufts Center for the Study of Drug Development. 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.
The new analysis, which updates similar Tufts CSDD analyses, was developed from information provided by 10 pharmaceutical companies on 106 randomly selected drugs that were first tested in human subjects anywhere in the world from 1995 to 2007.
“Drug development remains a costly undertaking despite ongoing efforts across the full spectrum of pharmaceutical and biotech companies to rein in growing R&D costs,” said Joseph A. DiMasi, director of economic analysis at Tufts CSDD and principal investigator for the study. He added, “Because the R&D process is marked by substantial technical risks, with expenditures incurred for many development projects that fail to result in a marketed product, our estimate links the costs of unsuccessful projects to those that are successful in obtaining marketing approval from regulatory authorities.”
In a study published in 2003, Tufts CSDD estimated the cost per approved new drug to be $802 million (in 2000 dollars) for drugs first tested in human subjects from 1983 to 1994, based on average out-of-pocket costs of $403 million and capital costs of $401 million. The $802 million, equal to $1,044 million in 2013 dollars, indicates that the cost to develop and win marketing approval for a new drug has increased by 145% between the two study periods, or at a compound annual growth rate of 8.5%. According to DiMasi, rising drug development costs have been driven mainly by increases in out-of-pocket costs for individual drugs and higher failure rates for drugs tested in human subjects.
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. “In fact,” DiMasi said, “changes in the overall time profile for development and regulatory approval phases had a modest moderating effect on the increase in R&D costs. As a result, the time cost share of total cost declined from approximately 50% in previous studies to 45% for this study.”
The study was authored by DiMasi, Henry G. Grabowski of the Duke University Department of Economics, and Ronald W. Hansen at the Simon Business School at the University of Rochester.
From the abstract:
The research and development costs of 106 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms. These data were used to estimate the average pre-tax cost of new drug and biologics development. The costs of compounds abandoned during testing were linked to the costs of compounds that obtained marketing approval. The estimated average out-of-pocket cost per approved new compound is $1395 million (2013 dollars). Capitalizing out-of-pocket costs to the point of marketing approval at a real discount rate of 10.5% yields a total pre-approval cost estimate of $2558 million (2013 dollars). When compared to the results of the previous study in this series, total capitalized costs were shown to have increased at an annual rate of 8.5% above general price inflation. Adding an estimate of post-approval R&D costs increases the cost estimate to $2870 million (2013 dollars).