Developing and gaining marketing approval for a new prescription medicine, 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 (CSDD).
The $2.59 million per approved compound is based on estimated average out-of-pocket cost of $1.4 billion and time costs (expected returns investors forego while a drug is in development) of $1.16 billion.
Estimated average costs of post-approval R&D—studies to test new indications, new formulations, new dosage strengths and regimens and monitor safety and long-term side effects in patients, required by the FDA as a condition of approval—of $312 million boost the full product lifecycle cost per approved drug to $2.870 billion. All figures are 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 first tested in human subjects anywhere in the world between 1995 and 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.
“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,” he said.
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 $1.04 billion in 2013 dollars, indicates the cost to develop and win marketing approval for a new drug has increased 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 humans.
Factors that likely have boosted out-of-pocket clinical costs include increased trial complexity, larger 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.
The study also was authored by Henry G. Grabowski of the Duke University Department of Economics and Ronald W. Hansen at the Simon Business School at the University of Rochester.
