The most recent analysis by the Tufts Center for the Study of Drug Development (CSDD) of the average cost to develop and gain marketing approval for a new drug—pegged at $2.558 billion—has been published in the Journal of Health Economics.

The article contains more detailed analyses and discussion than were presented in November 2014 when Tufts CSDD first disclosed primary results on the cost of developing a new prescription medicine, after having previously submitted the study to the peer-reviewed publication.

The $2.558 billion figure per approved compound is based on estimated average out-of-pocket costs of $1.395 billion and time costs (expected returns that investors forego while a drug is in development) of $1.163 billion.

When post-approval R&D costs of $312 million are included, the full, product lifecycle cost per approved drug, on average, rises to $2.87 billion, according to Tufts CSDD. Post-approval studies, required by the FDA as a condition of approval, assess new indications, new formulations and new dosage strengths and regimens, and monitor safety and long-term side effects in patients. All figures are expressed in 2013 dollars.

The Tufts CSDD estimate also accounts for expenses incurred for product development efforts that did not reach fruition, which Joseph A. DiMasi, director of economic analysis at Tufts CSDD and principal investigator for the study, said reflects the full cost of winning marketing approval for a new drug.

The analysis was based, in part, on 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.

Noting that drug development is lengthy—often taking longer than a decade—DiMasi said that out-of-pocket costs for individual drugs and higher failure rates for drugs tested in human subjects were the primary reasons behind rising drug development costs.

Factors that helped boost out-of-pocket clinical costs were increased clinical trial complexity, larger clinical trial sizes, higher cost of inputs from the medical sector used for development, 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.

“Drug developers are taking action to rein in rising development costs, including increasing efforts to discover, validate, and use biomarkers, adopting new approaches to patient recruitment and retention, and implementing leading-edge project management practices, but they face strong headwinds, given the complexity of the problems they're addressing,” said DiMasi.

Co-authoring the study with DiMasi were Henry G. Grabowski of the Duke University Department of Economics, and Ronald W. Hansen at the Simon Business School at the University of Rochester.